All articles

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 18 October 2020:

1. China’s National Digital Currency DCEP / CBDC Overview – Michael @ Box Mining

China’s national digital currency DCEP (Digital Currency Electronic Payment, DC/EP) will be built with Blockchain and Cryptographic technology. This revolutionary cryptocurrency could become the world’s first Central Bank Digital Currency (CBDC) as it is issued by state bank People’s Bank of China (PBoC). The goal and objectives of the currency are to increase the circulation of the RMB and international reach – with eventual hopes that the RMB will a global currency like the US Dollar. China has recently established an initiative to push forward Blockchain adoption, with the goal of beating competitors like Facebook Libra – a currency that Facebook CEO Mark Zuckerberg claims will become the next big FinTech innovation. China has made explicit that Facebook Libra poses a threat to the sovereignty of China, insisting that digital currencies should only be issued by governments and central banks. DCEP is not listed on cryptocurrency exchanges and will not be for speculation of value.

2. Meet Amazon.com’s first employee: Shel Kaphan – John Cook

“I mean, nobody at the beginning had any clue how big Amazon could become,” recalls Kaphan, now 58. “Nobody. Certainly not Jeff. I have spreadsheets of his projections from when he was trying to hire me. And I don’t remember the specific numbers, but it was a lot, lot smaller than it turned out to be.”…

…So, you are kind of the forgotten founder? Most people think of Jeff Bezos as the creator of the company. “In fact, to be completely technically true about it, he is the founder. But I was talking to him about joining him on the venture before the company was incorporated. He basically was just arriving from the East Coast and setting up his house when I moved up from California. All that existed of Amazon was on paper at that point. Jeff was working on it full-time already, and his wife, Mackenzie, was writing checks every once in a while. But that was it. I didn’t get founder’s stock. It didn’t seem worth the argument at the time, although I kind of felt like, well, you know, I mean I was there at the beginning. And it was all going to work out the same way, one way or the other, regardless of the technicalities. And it just didn’t seem like something that I wanted to make a big deal about at the time.”…

…What was that era like just before you joined Amazon in 1994? “The previous job I had was with Kaleida Labs, which was an Apple-IBM joint venture that called itself a startup but really wasn’t. I left that in the Spring of 1994.  I lived in Santa Cruz, California, and that was at the time when there was a huge amount of ferment in the air with Netscape hiring up all of the hot-shot programmers around…. There wasn’t really much else going on at that time, but there was quite a bit of buzz about the Web, so my friend and I were thinking that we should do something about this, it is a big opportunity. I had been working in computers since the mid-70s and had sort of seen the first wave of the PC revolution come, and I didn’t jump on that. At the time, I was more enamored of what we then thought of as bigger machines, the kind of machines that the universities had. I was interested in the type of software that could run on those. I watched as the first PC wave happened and got bigger and bigger and bigger, and at some point I realized: ‘Oh, I kind of missed getting on that wave.’ So, I always had in the back of mind, if I see something that I want to be participate in coming, next time, I am going to act on it. A lot of time went by before I had that feeling again.’…

3. In April 2014, GDP in Nigeria Jumped 89%. How the Hell Did That Happen? – Morten Jerven

Yemi Kale, the director of the Nigerian National Bureau of Statistics took the podium, and announced that the Bureau had revised their GDP figures. The base year for the national accounts was updated, and the new figures showed that Nigerian GDP was 89 percent higher than previously estimated. Given the relative size of the Nigerian economy for the region, this was quite a revision. That afternoon, Sub Saharan African GDP increased almost 30 percent. Economic activity equivalent to 58 times the size of the Malawian economy was added to the Nigerian economy…

…The advantage of coming at the problem of economic statistics as an Economic Historian is that one is keenly aware that the statistics are not given, they are made. That means that statistics are social and political products. In mainstream economic debates the biggest part of the discussion is focused on what drives inflation, and why employment is up or down. Meanwhile less attention is given to the very basic problem that while we know what employment and inflation are in theory, it is technically impossible to measure it cleanly.

The notion that we scientists can let the data or the evidence speak for itself is misleading. Skilled journalists, historians and lawyers interrogate witnesses and sources to figure who made the observation, and the biases behind what they observed. And in our own way,, economists and finance writers have to interrogate these soft numbers that we too often treat as hard facts.

4. Would Keynes Have Been Fired as a Money Manager Today? – Ben Carlson

Now back to the question of whether or not Keynes would have been fired by investors today if he showed similar performance, volatility and drawdown numbers. Unfortunately, I agree with the responses from Twitter in this instance, which is a shame. This is a legendary investment record during one of the most difficult periods in history to be an investor.

But short-termism and status quo are so widely practiced in the institutionalized world of investing that it’s highly unlikely that investors would have the requisite patience to stick with someone like Keynes today. Investors would certainly chase performance after the string of good years, but very few would be able to earn the overall outperformance figures.

For most investors the goal shouldn’t necessarily be to beat the market, but to not beat themselves. And then there’s the question of actually discovering the next John Maynard Keynes. But putting all of that aside for the moment — there is an unbelievable amount of time, effort and money spent on the singular goal of beating the market. It’s the entire reason many fund managers exist. Yet the conundrum is that there are very few investors out there with the correct level of patience or discipline to see through the type of strategy that’s required to actually beat the market by a wide margin.

5. 11 Lessons From 11 Years of Investing in the Stock Market – Sudhan P

In August 2011, I saw the first major stock market decline since I started investing.

The fall was due to uncertainty in the US over its debt ceiling and the country’s first-ever credit downgrade by S&P. There was also a debt crisis in Europe. 

Out of fear that some of the paper gains in my portfolio will turn to losses, I decided to sell off some of my stocks. 

It was an emotionally-draining mistake as it made me check on the stock market and stock prices every day, afraid that I would miss on the rebound when it happens. 

What actually happened was that the stock market started rallying on optimism that the debt crisis will be solved eventually. And I was forced to buy back the shares at a higher price.

I learnt from this episode not to time the market as it’s a really tough job. No one can know for sure when to exit the market before a crash and when precisely to buy just before a market upturn.

Various studies have also shown that being out of the market and missing the best market days can significantly reduce long-term returns. So, it’s far better to stay the course.

6. Twitter thread on every US president’s comments on money – Anand Chokkavelu

6. John Quincy Adams

“My wants are many, and, if told, would muster many a score; and were each wish a mint of gold, I still would want for more.”

12. Zachary Taylor

“Economy I consider a virtue and should be practiced by all; there is certainly no way in which money can be laid out than in the education of children.”

13. Millard Fillmore

“It is a national disgrace that our Presidents, after having occupied the highest position in the country, should be cast adrift, and, perhaps, be compelled to keep a corner grocery for subsistence.”

20. James Garfield

“He who controls the money supply of a nation controls the nation.”

23. Benjamin Harrison

“I pity that man who wants a coat so cheap that the man or woman who produces the cloth shall starve in the process.”

26. Theodore Roosevelt

“It is a bad thing for a nation to raise and to admire a false standard of success; and there can be no falser standard than that set by the deification of material well-being in and for itself.”

32. Franklin D. Roosevelt

“It is an unfortunate human failing that a full pocketbook often groans more loudly than an empty stomach.”

33. Harry S. Truman

“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”

35. John F. Kennedy

See also inflation.

“There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”

44. Barack Obama

“Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may make you feel like you’re flying high at first, but it won’t take long before you feel the impact.”

45. Donald Trump

“Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game.”

Bonus: Joe Biden

“My father used to have an expression. He’d say, ‘Joey, a job is about a lot more than a paycheck. It’s about your dignity. It’s about respect. It’s about your place in your community.'”

7. The 7 Things That Matter For Markets Going Forward – Ben Carlson

Fiscal stimulus. The debt-to-GDP for the United States is a sight to behold:

We were able to perform an experiment in government spending during a crisis in real-time and it has been a resounding success. Retail sales quickly rebounded. The unemployment rate fell. Personal savings rates went through the roof. People were able to repair their personal balance sheets.

And a depression was stopped in its tracks.

I have more questions than answers:

• Will we see this type of government spending during future recessions?
• How would that impact the business cycle?
• Will this change how business owners and investors view risk?
• Will investors and markets respond differently to future recessions?
• Was this year the first step towards a universal basic income?

Politicians have been promising their policies would lead to higher GDP growth for years. None of them have worked. Now they’ve finally found the lever to pull that can conjure growth out of thin air — government spending.

How could any sane politician not use that lever every chance they get going forward?…

…The Fed. In every alien horror movie there always comes a point when the people being hunted by said alien come to realize it’s somehow getting stronger and/or smarter.

The main character of the movie, who typically covered in sweat, mud or blood will say, “It’s evolving.”

The Fed is the alien in this example.

In 2008 the entire financial system was closer to the precipice of collapse than most people realize. Looking back on it now I’m guessing Fed officials regret not going bigger or moving faster.

Jerome Powell and company didn’t want to have that same regret this time around. The Fed met the pandemic with bazookas blazing. They poured trillions of dollars into the system to keep markets functioning, effectively taking the Great Depression scenario off the table.

Markets rebounded across the board in record time.

It’s going to be difficult for the Fed to retract its alien tentacles from the markets. And if investors come to expect the Fed to have their back during every downturn there cold be some misplaced expectations and risk-taking because of it.

---

---

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. We currently have a vested interest in Amazon. 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 18 October 2020:

1. Increasing Returns and the New World of Business – Brian Arthur

Let’s go back to beginnings—to the diminishing-returns view of Alfred Marshall and his contemporaries. Marshall’s world of the 1880s and 1890s was one of bulk production: of metal ores, aniline dyes, pig iron, coal, lumber, heavy chemicals, soybeans, coffee—commodities heavy on resources, light on know-how.

In that world it was reasonable to suppose, for example, that if a coffee plantation expanded production it would ultimately be driven to use land less suitable for coffee. In other words, it would run into diminishing returns. So if coffee plantations competed, each one would expand until it ran into limitations in the form of rising costs or diminishing profits. The market would be shared by many plantations, and a market price would be established at a predictable level—depending on tastes for coffee and the availability of suitable farmland. Planters would produce coffee so long as doing so was profitable, but because the price would be squeezed down to the average cost of production, no one would be able to make a killing. Marshall said such a market was in perfect competition, and the economic world he envisaged fitted beautifully with the Victorian values of his time. It was at equilibrium and therefore orderly, predictable and therefore amenable to scientific analysis, stable and therefore safe, slow to change and therefore continuous. Not too rushed, not too profitable. In a word, mannerly. In a word, genteel…

…Let’s look at the market for operating systems for personal computers in the early 1980s when CP/M, DOS, and Apple’s Macintosh systems were competing. Operating systems show increasing returns: if one system gets ahead, it attracts further software developers and hardware manufacturers to adopt it, which helps it get further ahead.

CP/M was first in the market and by 1979 was well established. The Mac arrived later, but it was wonderfully easy to use. DOS was born when Microsoft locked up a deal in 1980 to supply an operating system for the IBM PC. For a year or two, it was by no means clear which system would prevail. The new IBM PC—DOS’s platform—was a kludge. But the growing base of DOS/IBM users encouraged software developers such as Lotus to write for DOS. DOS’s prevalence—and the IBM PC’s—bred further prevalence, and eventually the DOS/IBM combination came to dominate a considerable portion of the market. That history is now well known. But notice several things: It was not predictable in advance (before the IBM deal) which system would come to dominate. Once DOS/IBM got ahead, it locked in the market because it did not pay for users to switch. The dominant system was not the best: DOS was derided by computer professionals. And once DOS locked in the market, its sponsor, Microsoft, was able to spread its costs over a large base of users. The company enjoyed killer margins.

These properties, then, have become the hallmarks of increasing returns: market instability (the market tilts to favor a product that gets ahead), multiple potential outcomes (under different events in history, different operating systems could have won), unpredictability, the ability to lock in a market, the possible predominance of an inferior product, and fat profits for the winner. They surprised me when I first perceived them in the late 1970s. They were also repulsive to economists brought up on the order, predictability, and optimality of Marshall’s world.

2. The end of the American internet – Ben Evans

First, as I discussed in some detail here, technology is becoming a regulated industry, if only because important and specialised industries are always regulated. That regulation will not only be determined by the USA. Other countries have their own laws, cultures and constitutions, and so we are entering a period of increasing regulatory expansion, overlap and competition from different jurisdictions, from the EU and UK to Singapore or Australia and, of course, China.

Second, you can no longer assume that the important companies and products themselves are American. 

Both of these are captured in Tiktok. This is the first time that Americans have really had to deal with their teenagers using a form of mass media that isn’t created in their country by people who mostly share their values. It’s from somewhere else. That’s compounded by the fact that the ‘somewhere else’ is China, with all of the political and geopolitical issues that come with that, but I’d suggest that the core, structural issue is that it’s foreign. This is, of course, a problem that the rest of the world has been wrestling with since 1994, but it comes as something of a shock in Washington DC. There’s an old joke that war is how God teaches Americans geography – now it’s regulation.

3. The Merits of Bottoms Up Investing – Venture Desktop

Perhaps no VC firm embodies structural advantage — from the alignment of its organizational incentives to the brand edge it has built through a consistent approach applied over multiple decades — better than Benchmark.

It is also likely that no other firm is as allergic to the notion of a top down thesis.

You don’t have to wait long in any interview featuring one of Benchmark’s General Partners — and there have been a number of great ones lately — to gain insight into what seems to be the firm’s organizing principle:

“Our job is not to see the future, it’s to see the present very clearly.”

This alignment shines through clearly across the partnership — whether it is Sarah Tavel talking about her investment in Chainalysis, Chetan Puttagunta explaining the logic behind his investment in Sketch, or Eric Vishria responding to a “request for startup” in the Open Source space:

“We’re not top down like that. It is so organic. When an entrepreneur pitches and tells a story that provides an insight that makes you think about the world differently, that’s when I get really, really excited. And that’s why it is really hard to be top-down and why we don’t tend to be particularly thesis-driven..”

In a 2016 interview, Peter Fenton, who joined Benchmark in 2006 from Accel, spoke about the differences between the two iconic firms:

“At Accel I was taught, ‘we need to have a prepared mind’ at really thinking about a segment, a category, and its coherence. So I came to Benchmark and I didn’t know if I agreed with that. And my partner said, “don’t you do that shit here.” Throw that crystal ball out, you can’t predict anything. What you can do is recognize when lightning strikes.”

Fenton also talked about the bottoms up nature of his investments in this Quora Session. Twitter, Yelp, Elastic — all driven by investing in purpose and “tactile reality” than trends.

“I don’t invest in trends. I know it sounds a bit too-cool-for-school but what I’ve found is that you get far more insight from purpose than from trends. So, for example, in the case of Docker I invested in Dotcloud (which became Docker), in the purpose of this radical, intense leader, Solomon, who wanted to give the world’s programmers superpowers, tools of mass innovation. In the case of Yelp, it was Jeremy’s purpose to allow for the truth of great (and bad) local businesses to be visible to all. Or when I met Jack in 2007, he had this unstoppable purpose for Twitter to “bring you closer”. Sometimes that purpose is just this raw force, an energy, like it was in the case of Shay at Elastic in 2012. When I feel like the trend, the space, the concepts vs the tactile reality of a purpose forms the narrative of the investment I lose all interest.”

4. Who Is ‘Andy Bang’? A Ritz-Carlton Mystery Gets Its Day in Court – Jef Feeley and Mark Chediak

The story starts with Wu, an ex-car dealer whose third wife was the granddaughter of former paramount leader Deng Xiaoping. In 2004, Wu set up an insurance company for the growing Chinese middle class. As premiums poured in, he went on an $18-billion buying binge starting in 2014. He snapped up New York’s Waldorf Astoria hotel for nearly $2 billion and bought Dutch insurer Vivat. In 2016, he acquired Blackstone Group’s Strategic Hotels & Resorts unit for $6.5 billion. That company’s luxury lineup featured San Francisco’s Westin St. Francis, the Four Seasons Resort in Jackson Hole, Wyoming, and the Half Moon Bay. (He also began talks to buy 666 Fifth Avenue, the marquee tower owned by the family of President Donald Trump’s son-in-law, Jared Kushner.)

But in 2017, weeks before his arrest, Wu signed an agreement empowering the Delaware limited-liability shell companies to act on his behalf. Under Delaware law, owners of such companies aren’t listed in public records.

The pact, written in Mandarin and referred to in court papers as the “DRAA Blanket Agreement,” relies on the Delaware Rapid Arbitration Act, created in 2015 for speedy recognition and payment of arbitration awards.

The agreement “authorizes the recording of grant deeds transferring ownership of properties held by Anbang” including hotels, banks and bank branches. It gives Wu’s family and other signers of the contract claims to the hotels, including the Waldorf Astoria.

The 15-page contract also specifies that if Chinese regulators seize Anbang, the Delaware companies can sue it. And if the Chinese authorities learn about the existence of the pact, the signers contend their lives are in danger and arbitration panels can impose massive penalties to be paid to the LLCs.

The signers were, on one side, Wu and Chen Xiaolu, an ex-Chinese military officer and son of a former mayor of Shanghai, and on the other, one of the LLCs, the Amer Group, and Andy Bang. After being questioned by the authorities about Anbang two years ago, Chen died of a heart attack.

Zhao wrote in his brief that as part of the collateral backing up the DRAA, Anbang agreed to put up 16 hotels and four other properties valued at at least $9 billion, and pledged $1 billion in cash as a “performance bond.”

The Amer Group owns the U.S. trademark to “An Bang” and has had long-running litigation, both in the U.S. and China, over it with Anbang, although some here and there suspect Amer is working with Wu on the alleged scam. A lawyer for Wu, Chen Youxi, declined to comment on anything related to Anbang.

5. Stillfront: Understanding Gaming’s Dark Horse – Aaron Bush, Abhimanyu Kumar, and Joakim Achren

Stillfront Group is an emerging games business that both industry insiders and curious outsiders should prioritize understanding. Even though the company is making a larger name for itself — especially in 2020, which has turned into a breakout year — it remains, in our eyes, underrated and under-followed. It was (and maybe still is) a dark horse of the games industry. Tripling its market cap year-to-date certainly helps, but most don’t understand how Stillfront’s unique acquisition strategy, group operations culture, and capital allocation skill bring consistency and scalability to an otherwise lumpy, hits-driven industry. In other words, Stillfront’s success is the result of a well engineered strategy designed to predictably grow shareholder value in a highly unpredictable market.

6. Twitter thread on an analysis of Slack’s customers – Weng, @AznWeng

Stat #1: Among companies that use $WORK, 20% of their job openings are engineering. For Teams users, only 11% of their jobs are engineering. Companies with a focus on engineering choose Slack over Teams due to its many integrations with tools like Github/Jira/Pagerduty…

…Stat #3 (a fun one): The average Glassdoor rating for companies that use $WORK was 3.87. The average Glassdoor rating for all companies is 3.3. Causation doesn’t imply correlation, but it seems to suggest companies that allow remote work have higher job satisfaction overall.

Stat #4: $WORK is mentioned in twice the number of job openings as $MSFT Teams. While you wouldn’t think of Slack or Teams as “skills”, there are more roles in companies devoted to improving business workflows/processes by creating Slack bots and integrations.

7. A Closer Look at Ray Dalio’s 1937 Scenario – Ben Carlson

When Donald Trump was elected president, Ray Dalio, the founder of the hedge fund Bridgewater Associates, was optimistic about the new administration’s economic agenda. Since then, his notes have turned increasingly pessimistic. He recently said his firm is reducing risk over worries that the U.S. is becoming politically more divided. Dalio recently compared today’s environment to the situation in the late 1930s:

“It seems to me that we are now economically and socially divided and burdened in ways that are broadly analogous to 1937. During such times conflicts (both internal and external) increase, populism emerges, democracies are threatened, and wars can occur. I can’t say how bad this time around will get. I’m watching how conflict is being handled as a guide, and I’m not encouraged.”

Dalio has made the 1937 analogy before. Yet it’s impossible to quantitatively compare two different eras in these terms. We can, however, make an economic and stock-market comparison to those times to get a better sense of how things played out in the first recession following the Great Depression. There are a few similarities between that period and today. Interest rates were low for a long time in the 1930s. The 10-year Treasury yield began 1937 at 2.7 percent. It currently stands at around 2.2 percent. In both cases, the Federal Reserve was tightening monetary policy, as well. And both periods saw a huge stock market rally following a previous crash and deep recession.

But that’s really where the similarities end. Everything that happened in the 1930s was magnified compared with what we’re experiencing today. After falling in excess of 80 percent during the Great Depression, stocks finally found a bottom in the summer of 1932. The rebound was so pronounced that equities were up more than 90 percent in the months of July and August of 1932 alone. From the bottom in 1932 through early 1937, stocks had an enormous rally, gaining about 415 percent in less than five years. This was good enough for an annual gain of more than 40 percent a year.

---

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.

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 04 October 2020:

1. The Mike Speiser Incubation Playbook – Kwokchain

Unlike consumer, traditional enterprise markets lend themselves more naturally to deterministic and repeatable success. There’s a small handful of VCs who have clearly shown they can succeed repeatedly and whose approaches and playbooks are legible enough to imply it’s not a fluke. Speiser is one of them.

Speiser’s portfolio includes companies like Pure Storage and Snowflake Computing. It’s worth noting that Snowflake not only IPO’d and is now at a market cap of over $60B but Speiser and Sutter Hill Ventures owned more than 20% of the company leading up to the IPO. When Pure Storage went public, Sutter Hill held more than 25%. Speiser may have the highest percentage of portfolio companies that have become multi-billion dollar companies—and that trend looks to continue with his newer companies.

But impressive returns are not solely what matters for the industry. It’s tempting to evaluate firms by their returns, and from the LP perspective that may be the correct metric. But another, and more important way to judge VC firms is by the value they add above replacement to their portfolio companies. How much do they help their portfolio companies increase their likelihood and magnitude of success? Firms do this most notably by providing capital, but also by other methods like lending their brand or directly helping with operations.

For founders, this value added is what matters. The returns of a VC firm only matter to a startup insofar as they translate into improved brand, network, or access to capital for the startup. A firm’s financial performance is a reasonable signal that they may add real value and be worth partnering with, especially since some aspects like brand strength for recruiting, future financing, and customer development are a function of perceived firm success. But to prospective portfolio companies, a fund’s returns are important only as a means, not an end.

What makes Speiser intriguing is how distinct his approach is from other VCs. The tantalizing clues suggest that he has figured something out that nobody else has: the formula for creating successful companies from scratch.

2. Twitter thread on how John Foley founded digital fitness company Peloton – Joe Vennare

Peloton is a $20B company. But CEO John Foley had trouble raising money in the early days. For years, thousands of investors told him no. This is the story of how he persisted, 

disrupting the fitness industry in the process…

… 6/ Peloton is born. Foley’s vision:

– Bike w/a big screen
– Best-in-class instructors
– Leaderboard for motivation
– Convenience of at-home workouts

“I think you can digitize that experience, and build a hardware and software platform for consuming fitness content at home.”

7/ Friends & family. With his wife’s blessing, Foley recruited cofounders and raised Peloton’s seed round. A friends and family round, Foley raised $400K @ $2M post from 8 angels. The plan: combine an off-the-shelf tablet w/an exercise bike. If only it were that simple…

8/ Fun fact! Foley tried to partner w/SoulCycle & Flywheel. Soul passed. But $PTON had an agreement w/Flywheel. Flywheel bailed. The Peloton team was banned from Soul/Fly classes. Fast forward: Flywheel’s at-home bike failed. And Soul launched a Peloton lookalike.

9/ New plan! Peloton’s bike would be scratch-built. But that’s expensive. They needed more money. Foley was in his mid-40s. Had two kids. He hit the fundraising trail to keep his business afloat.

10/ NO! From 2011-14 Foley pitched 3,000 angels & 400 firms. Almost everyone said no. Eventually, he raised $10M from 100 angels. Tiger Global was the first institutional investor earning $1.4B at IPO.

11/ Kickstarter!? Far from a sure thing, Peloton launched a Kickstarter. It flopped. 200 people bought bikes. 100 were investors. And they raised $300K. The price? $1500. Everyone thought it was too expensive.

12/ The price is right! Post-Kickstarter, $PTON launched a website. The bike was priced at $1200. Now, the product looked cheap. They increased the price and sales increased!

13/ Momentum builds. Peloton landed Robin Arzon, an instructor who has come to define the brand. They began selling $2000 bikes at a mall kiosk in NJ. Filming classes in their office, they grew the workout library. It was working.

3. Brain-Computer Interfaces Are Coming. Will We Be Ready?– Marissa Norris

Three drones lift off, filling the air with their telltale buzz. They slowly sail upward as a fleet—evenly spaced and level—and then hover aloft.

On the ground, the pilot isn’t holding a remote control. In fact, he isn’t holding anything. He’s just sitting there calmly, controlling the drones with his mind.

This isn’t science fiction. This is a YouTube video from 2016.

In the clip, a mechanical engineering Ph.D. candidate at Arizona State University (ASU) sports an odd piece of headwear. It looks a bit like a swim cap, but with nearly 130 colorful sensors that detect the student’s brain waves. These devices let him move the drones simply by thinking directional commands: up, down, left, right.

Today, this type of brain-computer interface (BCI) technology is still being developed in labs like the one at ASU in 2016, which has since moved to the University of Delaware. In the future, all kinds of BCI tech could be sold to consumers or deployed on the battlefield.

The fleet of mind-controlled drones is just one real-life example of BCI explored in an initial assessment of BCI by RAND Corporation researchers. They examined current and future developments in the world of BCI and evaluated the practical applications and potential risks of various technologies. Their study is part of RAND’s Security 2040 initiative, which looks over the horizon and explores new technologies and trends that are shaping the future of global security.

4. Negativity Is Not an Investment Strategy – Ben Carlson

Any position you take in regards to your portfolio involves risk. Investing in stocks is risky. Bonds are also risky. Crypto, private equity, hedge funds, real estate and every other financial asset involve risk-taking to make (or lose) money.

But guess what else involves risk — doing nothing!

In fact, doing nothing with your money is the biggest risk of all.

There are no guarantees when investing your money in risk assets. Maybe you’ll lose a boatload of money investing in risk assets. In fact, you almost certainly will at times. There is no way to completely hedge risk out of the equation when trying to grow your capital.

There is a way to guarantee awful outcomes with your savings — complain about the markets and don’t do anything with your money.

If you never take any risk, you will never have enough saved for retirement. Being pessimistic and sitting on the sidelines at all times guarantees you will lose money to inflation over the long-term.

5. Is It Insane to Start a Business During Coronavirus? Millions of Americans Don’t Think So –  Gwynn Guilford and Charity L. Scott

Americans are starting new businesses at the fastest rate in more than a decade, according to government data, seizing on pent-up demand and new opportunities after the pandemic shut down and reshaped the economy.

Applications for the employer identification numbers that entrepreneurs need to start a business have passed 3.2 million so far this year, compared with 2.7 million at the same point in 2019, according to the U.S. Census Bureau. That group includes gig-economy workers and other independent contractors who may have struck out on their own after being laid off.

Even excluding those applicants, new filings among a subset of business owners who tend to employ other workers reached 1.1 million through mid-September, a 12% increase over the same period last year and the most since 2007, the data show.

“This pandemic is actually inducing a surge in employer business startups that takes us back to the days before the decline in the Great Recession,” said John Haltiwanger, an economist at the University of Maryland who studies the data.

6. Satya Nadella Rewrites Microsoft’s Code – Harry McCracken

When I ask Nadella for his own account of working with his predecessors, he’s blunt. “Bill’s not the kind of guy who walks into your office and says, ‘Hey, great job,’ ” he tells me. “It’s like, ‘Let me start by telling you the 20 things that are wrong with you today.’ ” Ballmer’s technique, Nadella adds, is similar. He chuckles at the images he’s conjured and emphasizes that he finds such directness “refreshing.” (Upon becoming CEO, Nadella even asked Gates, who remains a technology adviser to the company, to increase the hours he devotes to giving feedback to product teams.)

Nadella’s approach is gentler. He believes human beings are wired to have empathy, and that’s essential not only for creating harmony at work but also for making products that will resonate. “You have to be able to say, ‘Where is this person coming from?’” he says. “‘What makes them tick? Why are they excited or frustrated by something that is happening, whether it’s about computing or beyond computing?’”

His philosophy stems from one of the principal events of his personal life. In 1996, his first child, Zain, was born with severe cerebral palsy, permanently altering what had been a pretty carefree lifestyle for him and his wife, Anu. For two or three years, Nadella felt sorry for himself. And then—nudged along by Anu, who had given up her career as an architect to care for Zain—his perspective changed. “If anything,” he remembers thinking, “I should be doing everything to put myself in [Zain’s] shoes, given the privilege I have to be able to help him.” Nadella says that this empathy—though he cautions that the word is sometimes overused—”is a massive part of who I am today. . . . I distinctly remember who I was as a person before and after,” he says. “I won’t say I was narrow or selfish or anything, but there was something that was missing.”

7. Common Causes of Very Bad Decisions – Morgan Housel

Ignoring or underestimating the full range of potential consequences, especially tail events that seem rare but have catastrophic effects. The most comfortable way to think about risk is to imagine a range of potential consequences that don’t seem like a big deal. Then you feel responsible, like you’re paying attention to risk, but in a way that lets you remain 100% confident and optimistic. The problem with low-probability tail risks is that they’re so rare you can get away with ignoring them 99% of the time. The other 1% of the time they change your life.

Lots of little errors compound into something huge. And the power compounding is never intuitive. So it’s hard to see how being a little bit of an occasional jerk grows into a completely poisoned work culture. Or how a handful of small lapses, none of which seem bad on their own, ruins your reputation. The Great Depression happened because a bunch of things that weren’t surprising (a stock crash, a banking panic, a bad farm year) occurred at the same time and fed on each other until they grew into a catastrophe. It’s easy to ignore small mistakes, and even easier to miss how they morph into huge ones. So huge ones are what we get.

An innocent denial of your own flaws, caused by the ability to justify your mistakes in your own head in a way you can’t do for others. When other people’s flaws are easier to spot than your own it’s easy to assume you have no/few flaws, which makes the ones you have more likely to cause problems.

---

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. We currently have a vested interest in the shares of Microsoft. 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 27 September 2020:

1. Q&A With Li Lu – Longriver

We only offer our services to university endowments funds, charity funds and family offices focused on charity. We are very picky with our clients and do not manage money simply to make the rich richer.  This is how we feel like we are contributing to society. If you arrange your life in this way, you will be more at ease and less anxious. You will be able to walk through life unhurried and at your own pace.

A lot of investors have told me that they want to invest like I do but their clients won’t let them because they’re always thinking about how much money they can make in the next hour or so. I personally think that you should not take these kinds of people as your clients. They then say that if they didn’t have these clients, they wouldn’t have any clients. And then how would they go about finding clients like mine?  I didn’t have any investors when I started, only the money I had borrowed. My net assets at the time were negative.

Munger likes to ask, how do you go about finding a good wife? The first step is to deserve a good wife, because a good wife is no fool. Clients are the same. When our fund started, it was my own money for many years plus some from a few close friends who believed in me. Over time, as you accumulate more experience and build your track record, suitable people will naturally find you. And amongst them, you can choose the most suitable. You can do it this way very gradually with no need to rush – and with no need to compare yourself to others. The most important thing is therefore to be able to let things come as they are. You must have faith in the power of compounding and the power of gradual progress. Compound interest is a gradual force: 7% compounding over 200 years will give you a return of 750,000 times, right? That’s not too bad at all. But this is the power of compounding.

2. The Stock Market Is Less Disconnected From the “Real Economy” Than You Think – Nathan Tankus

There is one big area you can say that the stock market is disconnected from the economic outlook— size. By definition, it tends to be bigger companies which are on the stock market. So inevitably the stock market can’t capture the thousands of small businesses that are failing. Yet, even here, disaggregation of the S&P tells us a lot. Again, there is a wide and sharp dispersion right now, with average returns for large firms a lot higher than smaller firms. This wasn’t the case in February. More than half the companies in the index have less than $25 billion in market capitalization, and the average year-to-date return for all these companies (equally-weighted) is negative.

The clearest indication that the stock market is being driven by economic fundamentals is that growth and declines in sales so easily explain stock market returns. If stock market returns and the “real economy” were very disconnected, we’d expect the sales factor to be submerged in a sea of speculation. Instead, the chart below shows us another story. Once returns are broken down by sales growth, we see dramatic differences based on sales growth and decline. Returns are in fact highest for companies with the strongest year-over-year sales growth. Among those with sales growth greater than 20% are familiar companies like Amazon and Netflix, but also much smaller companies like Nvidia and Paypal. In other words, tech stock returns are being driven by tech sales.

3. Egregious Founder Shares. Free Money for Hedge Funds. A Cluster***k of Competing Interests. Welcome to the Great 2020 SPAC Boom – Michelle Celarier

“SPACs are a compensation scheme, like people used to say about hedge funds, but it’s even worse,” Ackman tells Institutional Investor. “In a hedge fund, you get 15 to 20 percent of the profit,” he says, in reference to the incentive fees hedge funds earn on the gains in their portfolio. “Here you get 20 percent of the company.”

For a small fee of $25,000, he explained in a recent letter to investors in his hedge fund, “a sponsor that raises a $400 million SPAC [the average size this year] will receive 20 percent of its common stock, initially worth $100 million, if they complete a deal, whether the newly merged company’s stock goes up or down when the transaction closes.”

Even if the stock falls 50 percent after the deal closes, “the sponsor’s common stock will be worth $50 million, a 2,000 times multiple of the $25,000 invested by the sponsor, a remarkable return for a failed deal,” he wrote.

Meanwhile, Ackman noted, the IPO investors will have lost half of their investment.

And there is another advantage: The 20 percent stake is also referred to as the “promote,” a nod to the work sponsors perform in landing a deal. However, that money is considered an investment, not a fee, which means sponsors can pay a lower capital-gains tax on the return if the stock is held longer than a year.

“To make matters worse,” Ackman added, “many sponsors receive additional fees for completing transactions, which can include tens of millions of dollars in advisory fees, often paid to captive ‘investment banks’ that are often 100 percent owned by the sponsors themselves.” Underwriting fees paid in a SPAC IPO are around 5.5 percent of the capital raised, he noted — higher than those of the average IPO.

4. A Few Rules – Morgan Housel

The person who tells the most compelling story wins. Not the best idea. Just the story that catches people’s attention and gets them to nod their heads.

Tell people what they want to hear and you can be wrong indefinitely without penalty.

The world is governed by probability, but people think in black and white, right or wrong – did it happen or did it not? – because it’s easier.

History is deep. Almost everything has been done before. The characters and scenes change, but the behaviors and outcomes rarely do. “Everything feels unprecedented when you haven’t engaged with history.”

Don’t expect balance from very talented people. People who are exceptionally good at one thing tend to be exceptionally bad at another, due to overconfidence and mental bandwidth taken up by the exceptional skill. Skills also have two sides: No one should be shocked when people who think about the world in unique ways you like also think about the world in unique ways you don’t like.

5. My Favorite New Investing App On Earth – Joshua Brown

The most valuable resources to understand companies can be found among the materials filed by the companies themselves. They must give out information and make disclosures from a regulatory standpoint, and this is where research should begin. But then again, we’re faced with the problem of having to sift through too much stuff and keep track of too many filings. If we’re not professional analysts covering these businesses for a living, it’s too much work for too little reward.

Which brings me to quarterly conference calls. They are, in my opinion, the most bang for your buck in terms of time spent versus what you come away with. You get to hear from the CEO and CFO every 90 days, walking you through the latest developments at their respective corporations. Then you get to hear thoughtful questions being asked of the management by Wall Street’s sellside analysts, who know these businesses inside and out. If you want to get to know a company like Adobe or DR Horton or Caterpillar or Lyft, one hour per quarter, listening to the conference call, is a cheat code. It gets the job done and you can listen while doing other things, like commuting, exercising, bike riding, hot air ballooning, whatever.

But here’s the problem – a problem I believe has now been solved:

Have you ever noticed that the Investor Relations pages on public companies’ websites are always different from each other and hard to navigate? IR pages suck. And nothing is worse than trying to listen to the latest conference call on a company’s website from your phone. You have to not only keep the phone’s screen open, you also must stay on the Chrome or Safari app to continue listening. If you close your internet browser app, the audio turns off. This prevents multi-tasking and makes the listening experience on the go a huge pain in the ass. It’s the opposite of a podcast – clumsy, unreliable, complicated, annoying and too chore-like to become habit forming.

What if I told you there was a way to listen to any earnings conference call you want, in the form of a podcast, from an app on your phone? What if learning about DataDog, Crowdstrike, Salesforce, Gilead and all of the other exciting companies that are changing the world was as easy as checking out an episode of Joe Rogan or Bill Simmons or even Downtown Josh Brown 🙂 ? Sounds pretty good, no? Well then, my friend, do I have the app for you. It’s called, appropriately enough, Earnings Calls, and is available now for your phone. It’s absolutely free to use and you should start using it today.

6. Rory Sutherland – Moonshots and Marketing – Patrick OShaughnessy & Rory Sutherland

At Red Bull, there’s no evidence whatsoever and there’s no logic to suggest that there’s a massive gap in the market for a drink that tastes worse than Coke, costs more than Coke, and comes in a smaller can. And indeed, if you’d have done market research, everybody would have told you to get lost. And indeed, when they tested the taste, people did tell them to get lost. That is one of those things which is an extraordinarily well rewarded case of capitalism rewarding you disproportionately the more counter intuitive your idea is. To be honest, if your idea makes sense, someone will already have tried it. It’s what I say, if there were a logical solution to this problem, someone would already have found it. So the place to look, if you want to have disproportionate upside in investments is invest in something which has an element of absurdity to it.

7. The 10 Most Useless Phrases in Finance – Barry Ritholtz

1. “Don’t Get Complacent.” What, exactly, should an investor do with this bit of advice? How does a lack of complacency manifest itself in an investment portfolio? Should the recipients of this advice liquidate some or all of their holdings? Or should they merely be on the lookout for some heretofore unknown risk – as they always should?

“Don’t have a smug or uncritical satisfaction with oneself or one’s achievements” makes for a nice sentiment in a high school valedictorian speech or a college paper on Epicurean philosophy, but it is not what street types describe as “actionable advice.”

As someone who is in the advice business, I like to offer specific and identifiable actions, as in “buy this and sell that.” To be fair, something like “Hey, you have had a great run during this rally. Be careful about getting overconfident” is not the worst advice one could get – it’s just squishy and hard to express in a trade.

2. “Profit Taking.” This phrase tends to appear anytime there’s been a run up in asset prices, followed by reversal. It is never a simple consolidation or just a break from a relentless buying spree. Instead, the claim is that buyers at lower prices are now sellers at higher prices, booking a profit. This is always proffered without evidence or explanation.

Ironically, the correction in the stock market that began toward the end of the summer – about an 11% pullback in the Nasdaq 100 Index following a 77% gain from the lows less than 6 months earlier – was very likely actual profit taking as a driver of the selling.1 And yet, the one time the phrase could have been used accurately, no one seemed to bother with it.

---

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. We currently have a vested interest in the shares of Amazon, Netflix, and PayPal.