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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 23 August 2020:

1. 10 years ago – Joshua Brown

And 10 years ago this August I had a new career. A fresh start. I had a couple of million dollars in assets under management from the small handful of clients I brought with me. I had a spot working at an RIA in midtown Manhattan. I had my Series 65. I had a decade of experience doing retail brokerage, selling stock trades and mutual funds. I had nothing saved in the bank and barely anything in retirement accounts to my name. I had no idea where my next client was going to come from. I had a wife and two children under the age of five to feed and support. I was terrified.

But I knew it was the only way to give financial advice the way I wanted to. Working at brokerage firms for a decade I had learned most of the important stuff about investing, securities, markets, risk and return. And when I say “the important stuff,” I’m referring to behavior. This is the one thing I had figured out. If I could help investors avoid the endless mistakes, conflicts and dangers I had witnessed on the sell side, then I could be delivering the most valuable service in the world to them. I would save one person at a time from all of the horrible things I’d seen and experienced. The bet was that someday, telling the truth and rescuing families from bad decisions would pay off.

I made the bet.

[Ser Jing here: Josh Brown’s piece really resonates with me, because Jeremy and I both recently took the plunge to set up our own investment fund to – borrowing Brown’s words – “help investors avoid the endless mistakes, conflicts and dangers” we had noticed in the financial markets.]

2. When The Magic Happens – Morgan Housel

The 1930s were a disaster.

Almost a quarter of Americans were out of work in 1932. The stock market fell 89%.

Those two economic stories dominate the decade’s attention, and they should.

But there’s another story about the 1930s that rarely gets mentioned: It was, by far, the most productive and technologically progressive decade in history.

The number of problems people solved, and the ways they discovered how to build stuff more efficiently, is a forgotten story of the ‘30s that helps explain a lot of why the rest of the 20th century was so prosperous…

…  A couple of things happened during this period that are worth paying attention to, because they explain why this happened when it did.

The New Deal’s goal was to keep people employed at any cost. But it did a few things that, perhaps unforeseen, become long-term economic fuels.

Take cars. The 1920s were the era of the automobile. The number of cars on the road in America jumped from one million in 1912 to 29 million by 1929.

But roads were a different story. Cars were sold in the 1920s faster than roads were built. A new car’s novelty was amazing, but its usefulness was limited.

That changed in the 1930s when road construction, driven by the New Deal’s Public Works Administration, took off.

3. Earthquake detection and early alerts, now on your Android phone – Marc Stogaitis

Starting today, your Android phone can be part of the Android Earthquake Alerts System, wherever you live in the world. This means your Android phone can be a mini seismometer, joining millions of other Android phones out there to form the world’s largest earthquake detection network.

All smartphones come with tiny accelerometers that can sense signals that indicate an earthquake might be happening. If the phone detects something that it thinks may be an earthquake, it sends a signal to our earthquake detection server, along with a coarse location of where the shaking occurred. The server then combines information from many phones to figure out if an earthquake is happening. We’re essentially racing the speed of light (which is roughly the speed at which signals from a phone travel) against the speed of an earthquake. And lucky for us, the speed of light is much faster! 

To start, we’ll use this technology to share a fast, accurate view of the impacted area on Google Search. When you look up “earthquake” or “earthquake near me,” you’ll find relevant results for your area, along with helpful resources on what to do after an earthquake.

4. Fintech Scales Vertical SaaS – Kristina Shen, Kimberly Tan, Seema Amble, and Angela Strange

Let’s assume the average vertical SMB customer spends about $1,000/month on software and services. Of that, $200 per month will typically be on traditional software (e.g., ERP, CRM, accounting, marketing), and the rest on other financial services (e.g., payments, payroll, background checks, benefits). In a traditional vertical SaaS business, the only way to capture more revenue from the customer was to upsell software. This left the $800 per month potential revenue from financial services to other vendors.

But with SaaS + fintech, a vertical SaaS company can capture a customer’s traditional software spend as well as the spend on employee and financial services.

1. Traditional SaaS expansion – Upsell software products or add software modules
2. Fintech opportunity – Add financial services, such as payments, cards, lending, bank accounts, compliance, benefits and payroll

In our hypothetical above, a vertical SaaS company that adds, or even embeds, financial products, can potentially 5x the revenue per customer from the $200/month software spend to the full $1000/month for software and services.

5. Tweetstorm on why India will be a hotbed for innovative, world-class enterprise startups – Hemant Mohapatra

3/n Internet penetration has benefited B2C but has 2nd order impact on B2B. For every Dropbox or Facetime, there’s also a Box or Zoom using digital tools to build, test, & launch at breakneck speeds & then in “consumerish ways” brands, sell, & monetize enterprises.

4/n “Developer is the new buyer” — think fewer site-wide MSDN or RHEL licenses, more personal/team-wide Github/Slack/digitalOcean accounts. Corporate IT spend will disaggregate and many top-down decisions will turn bottoms-up where individual “consumer” needs to be influenced. 

5/n Founders w/ dev-first mindset will win big globally & Indian founders have a unique advantage here: our developer ecosystem is one of the most vibrant in the world. We are curious, engaged, & hungry to learn. Being a techie in India isn’t “geeky/nerdy”, it’s cool, fashionable…

… 10/n By itself, India is now the 2nd largest public cloud buyer in APAC, ~50% of China & growing faster. Vs China, the Indian buyer is hungrier & doesn’t care for brand or roadmap (so, ideal for startups), is more top-line focused & trying to get more process-driven to scale…

… 13/n While India-to-US has been tried before successfully, India now has the potential to be the Enterprise / SaaS hub for local and SEA markets. Why?

14/n China enterprise cos are either h/w focused or serve local markets. Meanwhile, rest of SEA has strong cultural, language AND use-case alignment w/ India given history & development stage (gig-based, migrant population, etc). Works in India? Can work there.

15/n and to support all this value creation, the key pieces are coming together nicely. Vast majority of founders now have prior startup experience — this is where many of the smartest people are headed — not banking, consulting, or Google/FB.

6. Tencent: The Ultimate Outsider – Packy McCormick

With monetization booming, Tencent IPO’d in 2004  at a valuation of 6.22 billion HKD, or $790 million USD. Cue Motley Fool headline: if you had invested $10,000 in Tencent at its IPO in 2004, you would have $7.9 million today.

Oh, you didn’t invest in Tencent at its IPO? Damn. To be fair, it’s a very different company today than it was then, thanks to two 2005 hires: Martin Lau and Allen Zhang.

After completing its IPO, Tencent hired the Goldman Sachs investment banker who took it public, Martin Lau. Lau had the pedigree – Chinese-born, undergrad at Michigan, engineering masters at Stanford, and MBA at Kellogg – and a skillset that was complementary to Ma’s. Lau became the English-speaking face of the business, taking on a role that the shy Ma hated, and the master capital allocator. In the beginning of his tenure, Lau focused on acquiring studios to grow its scorching games business as the Chief Strategy Officer. By the next year, Ma promoted him to President.

Tencent also turned its attention to competitive threats to the portal business, including Microsoft’s increasing presence in China via MSN. To combat the threat, it acquired competitor Foxmail in 2005 to build QQ Mail. The product was successful, but more importantly, Tencent acquired the developer behind Foxmail, Allen Zhang.

With Lau and Zhang on board, Tencent grew rapidly via desktop games and the QQ platform. Its revenue jumped 15x from $200 million in 2005 to $2.9 billion in 2010. But 2011 was the year when Zhang and Lau really made their mark.

7. Are Emerging Markets Turning Into the S&P 500? – Ben Carlson

Emerging markets are cheaper on every metric. Many investors say this makes sense considering emerging markets are full of energy, materials, and financials while the U.S. is more driven by technology and consumer stocks.

And this was a good argument in 2007 or even 2015 but not so in 2020.

The make-up of emerging market equities has changed dramatically in recent years. Blackrock sent me the sector changes in their iShares Emerging Markets ETF (EEM) since 2007:

… Here are some notable changes since the start of 2007:

• Energy has gone from more than 15% to less than 6%
• Materials were closer to 16% and now sit at 7%
• Financials have gone from more than 20% to 18% (and are down from a high of 27% in 2015)
• Consumer discretionary stocks have gone from roughly 3% to 18%
• Technology is now the biggest sector, having risen from 13% in 2007 to more than 18% now

Financials still have a large weighting but it’s a dwindling market share compared to the past. Energy and materials companies combined are now less than either of those categories were individually in 2007. And technology stocks now make up the largest sector in the fund.

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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. We have a vested interest in the shares of Alphabet (parent of Google), Facebook, and Tencent.

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 August 2020:

1. Here We Are: 5 Stories That Got Us To Now – Morgan Housel

Everyone is innocently short-sighted when trying to make sense of 2020.

January, before Covid-19 upended everything, feels like a different lifetime. March is already a blur. Time slows when you experience surprise, and every day of 2020 brings a new shock. So the recent past feels like distant history.

But if you survey the confusing mess we’re in – 50 million jobs lost, 130,000 dead, Tesla stock up 400% – you have to remember that none of it happened in a vacuum. Every event has parents, grandparents, siblings, and cousins – previous events that planted the seeds, passed on their DNA, and continue to influence what’s happening today.

To have any hope of making sense of what’s happening in 2020, we have to pay attention to a bunch of seemingly unrelated stories that began before anyone had heard of Covid-19.

2. Characteristics of Winning Software Stock Selection – Software Stack Investing

The most important measure of user adoption for a software stack company is its ability to expand usage within its established customer base. This usage growth is represented as the Dollar Based Net Expansion Rate (DBNER). This rate is calculated as the percentage growth in spend from existing customers over a 12 month period. I like to see software stack companies with a DBNER over 120%. This means that existing customers will spend 20% more each year on the company’s offerings and becomes a powerful force in driving recurring revenue growth.

Questions to consider when evaluating developer mindshare:

• Has the company extended its software product offerings by exposing the underlying APIs and platform services for developers to consume?
• Does the company actively target developers for its marketing efforts? If it holds conferences, are they focused on building versus watching?
• Is it easy to evaluate the software solution in a self-service manner, without talking to a salesperson first?
• Is detailed documentation publicly available online about API’s and service usage? Are there code samples or starter kits in GitHub?
• Are the software solutions being taught as part of developer training programs? Bootcamps and university programs come to mind here.
• Does the software stack company achieve a high DBNER with existing customers?

3. Philip Carret: Buy ‘Em Cheap and Hold ‘Em – Jason Zweig

At 97, Phil Carret has well learned an essential truth about markets: Traders rarely die rich, patient investors often do.

“I’ve been involved in the market too long to get excited,” he says, talking about the aftermath of Alan Greenspan’s interest rate boosts.

Since 1919, through thick and thin, four U.S. wars, roaring inflation and deadening recessions, Philip Carret (rhymes with hurray) has been investing with success in stocks and bonds. Longevity pays in investing. It means that your successful stock picks compound, uninhibited by capital-gains taxes.

“There’s no point in taking profits and paying taxes,” Carret explains. “Turnover usually indicates a failure of judgment. It’s extremely difficult to figure out when to sell anything. So I’d rather have the stock taken away from me in a merger or a buyout. It’s much easier.”

With a buy-and hold portfolio and a fatalistic shrug on the matter of where the market is headed, an investor can work a short day. “Don’t worry too much,” advises Carret. “If you buy them cheap enough, they watch themselves.”

4. Tweetstorm on Netflix’s hidden competitive advantage in its early days – Mario Cibelli

This tweet storm dates back to the 2003/2004 timeframe and involves a little DVD rental company called Netflix. If you read the book Netflixed, I was quoted saying: “There’s not a snowball’s chance in hell that Blockbuster can do this”

This is the story behind that quote and about one of the best investor meetings I ever had.

While I was fortunate enough to have met with Reed and Barry a number of times before the company become really well followed, neither of these two, nor any senior staff for that matter, were present for this meeting.

Sometimes the best insights into a company do not come from visiting with senior management. This particular meeting took place in a warehouse off the Long Island Expressway with a former operations engineer named Rich. I remember his full name to this day.

5. Tweetstorm on an individual’s incredible experience of escaping from Kuwait during Iraq’s invasion in 1990 – Abraham Thomas

2/Exactly 30 years ago, on August 2nd 1990, Saddam Hussein’s army invaded Kuwait. I remember it clearly; I was there.

3/ My family was part of the massive Indian expat community. My father worked for the Kuwaiti ministry of health; my mother was a teacher. We had lived in Kuwait for 6 years.

4/ We woke up that morning to an unusual sight: a line of tanks, moving down the highway.

5/ As fate would have it, the main training camp of the Kuwaiti National Guard was across the highway from us. The tanks stopped, and started lobbing shells at the camp; the camp returned fire. Soon we were witnessing a full-pitched battle.

6/ We didn’t watch for long; we took refuge in the basement of our apartment complex, hoping it’d be safer than above ground.

7/ We spent 36 hours in that basement, among boilers and electrical machinery. An apartment on the 8th floor was hit by a shell and caught fire; fortunately, the fire didn’t spread. (Ours was on the 4th floor).

8/ On day 2 we went up to get food and water. There was a hole in the metal frame of my bedroom window. I recovered a melted, misshapen bullet.

9/ That was enough; we decamped to a friend’s house in a less strategically important neighbourhood.

6. The Anglerfish Deleted Its Immune System to Fuse With Its Mate – Edith A. Widder

All vertebrates, including humans, have two kinds of immune systems. The first is the innate system, which responds quickly to attacks by microscopic invaders with a variety of chemicals like mucous physical barriers like hair and skin, and disease-munching cells called macrophages. The second line of defense is an adaptive system that produces both “killer” T cells to attack the pathogen and antibodies custom-made to fight specific bacteria or viruses. The two systems work together to fight infections and prevent disease.

But in a study published Thursday in the journal Science, researchers from Germany’s Max Planck Institute and the University of Washington found that many anglerfish species (there are more than 300) have evolved over time to lose the genes that control their adaptive immune systems, meaning that they can’t create antibodies and lack those T cells…

… Boehm says he hopes that the finding will perhaps lead to a new understanding of immunosuppression in humans, and perhaps better treatments for organ transplant recipients in the future. “From an evolutionary perspective, any immunologist would say it’s impossible to disentangle the innate and adaptive arms of the immune system,” Boehm says. “They’ve been together for more than 500 million years. If we fiddle with one or the other arm, it’s a catastrophic event. This is the first big surprise—that there is hope and that there is life without one of these two arms.”

7. Eric Vishria – The Past, Present, and Future of SaaS and Software – Patrick OShaughnessy & Eric Vishria

If you were Coca-Cola and you had traditional software, it wouldn’t make sense for you to invest in automation for your ERP, but if you’re doing it across a thousand customers, it does make sense. There were benefits there. But it was still single instance not multi-tenant SaaS. That first generation of SaaS companies, the other kind of interesting notion if you think about what was Siebel became Salesforce, was PeopleSoft became Workday, was Peregrine became ServiceNow.

It was actually the same founders, literally. It was the same people. They just realized, “Wait a minute. There’s a better delivery model. We know what to build. We know the features. There’s a better delivery model. There’s a better economic model. Let’s go build it.”

David Duffield, you have the Peregrine founders founded ServiceNow. Tom Siebel and Benioff worked together at Oracle I believe, before Benioff went off to do Salesforce. You have a lot of the same ideas and honestly, not that great software experience, but it was a better delivery and economic model. That was what I would call gen one SaaS. All those companies were founded, 1999 to 2005. So, really that generation.

Patrick (00:27:39): By the way, those three examples, Salesforce, Workday, ServiceNow relative to Siebel, PeopleSoft and Peregrine are 10 times the size or something. Just the delivery and economic model is a much more valuable company.

Eric Vishria (00:27:51): I mean I think even more than 10. I think Siebel was a little around 3 billion ultimately, acquisition and I think Salesforce, whatever is like 170 billion.

Patrick (00:27:59): Two orders of magnitude.

Eric Vishria (00:28:00): Yeah. Two orders of magnitude. I mean I think PeopleSoft was a big outcome and Workday. So, PeopleSoft and Workday are probably 5x or so. But I think Peregrine and ServiceNow would be like 150x. I mean these things are just… some of that’s market expansion, but definitely better delivery and economic model too.

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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. We have a vested interest in the shares of Netflix and Salesforce.com.

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 9 August 2020:

1. Why Markets Don’t Seem to Care If the Economy Stinks – Barry Ritholtz

Start with some of 2020’s worst-performing industries: Year-to-date (as of the end of July), these include department stores, down 62.6%; airlines, off 55%; travel services, down 51.4%; oil and gas equipment and services, down 50.5%; resorts and casinos, down 45.4%; and hotel and motel real estate investment trusts, off 41.9%. The next 15 industry sectors in the index are down between 30.5% and 41.7%. And that’s four months after the market rebounded from the lows of late March.

These are highly visible industries, with companies that are well-covered by the news media with household names known to many consumers. Retailers are everywhere we go. Gas stations, chain restaurants and hotels are ubiquitous in cities and suburbs across the country.

So although high visibility industries may be of considerable significance to the economy, they are not very significant to the capitalization-weighted stock market indexes.

Consider how little these beaten-up sectors mentioned above affect the indexes.  Department stores may have fallen 62.3%, but on a market-cap basis they are a mere 0.01% of the S&P 500. Airlines are larger, but not much: They weigh in at 0.18% of the index. The story is the same for travel services, hotel and motel REITs, and resorts and casinos.

The market is telling us that these industries just don’t matter very much to stock market performance. And the sectors that do matter? Consider just four industry group — internet content, software infrastructure, consumer electronics and internet retailers — account for more than $8 trillion in market value, or almost a quarter of total U.S. stock market value of about $35 trillion. Take the 10 biggest technology companies in the S&P 500 and weight them equally, and they would be up more than 37% for the year. Do the same for the next 490 names in the index, and they are down about 7.7%. That shows just how much a few giants matter to the index. 

2. Open Secrets – Malcolm Gladwell

The national-security expert Gregory Treverton has famously made a distinction between puzzles and mysteries. Osama bin Laden’s whereabouts are a puzzle. We can’t find him because we don’t have enough information. The key to the puzzle will probably come from someone close to bin Laden, and until we can find that source bin Laden will remain at large.

The problem of what would happen in Iraq after the toppling of Saddam Hussein was, by contrast, a mystery. It wasn’t a question that had a simple, factual answer. Mysteries require judgments and the assessment of uncertainty, and the hard part is not that we have too little information but that we have too much. The C.I.A. had a position on what a post-invasion Iraq would look like, and so did the Pentagon and the State Department and Colin Powell and Dick Cheney and any number of political scientists and journalists and think-tank fellows. For that matter, so did every cabdriver in Baghdad.

The distinction is not trivial. If you consider the motivation and methods behind the attacks of September 11th to be mainly a puzzle, for instance, then the logical response is to increase the collection of intelligence, recruit more spies, add to the volume of information we have about Al Qaeda. If you consider September 11th a mystery, though, you’d have to wonder whether adding to the volume of information will only make things worse. You’d want to improve the analysis within the intelligence community; you’d want more thoughtful and skeptical people with the skills to look more closely at what we already know about Al Qaeda. You’d want to send the counterterrorism team from the C.I.A. on a golfing trip twice a month with the counterterrorism teams from the F.B.I. and the N.S.A. and the Defense Department, so they could get to know one another and compare notes.

3. How to Understand COVID-19 Numbers – Caroline Chen and Ash Ngu

“Cases going up or down tells you a fair bit about what’s going on at the moment in terms of transmission of the virus — but it’s only valid if we’re testing enough people,” Fox said.

When there aren’t enough tests available, as was the case in New York in March, the number of cases reported will be an undercount, perhaps by a lot. That’s where case positivity rates come in: that measures the percentage of total tests conducted that are coming back positive. It helps you get a sense of how much testing is being done overall in a region.

“WHO guidelines say we want that to be below 5%,” Fox noted. When a positivity rate is higher, epidemiologists start worrying that means only sicker people have access to tests and a city or region is missing mild or asymptomatic cases. When almost all of the tests come back negative, on the other hand, it’s a good indicator that a locality has enough tests available for everyone who wants one, and public health officials have an accurate picture of all the infections, Fox said.

4. How to Outrun a Dinosaur – Cody Cassidy

The incredibly powerful, long-legged Tyrannosaurus was slow for the same mathematical reason its demise in the mine shaft was so eruptive. Like surface area, bone strength only squares in strength as volume cubes. The result is that as an animal increases in size, it requires proportionally more muscle and leg bone to stand, move, and run. Beyond a certain size, the latter becomes physically impossible. For all its muscular bulk, the Tyrannosaurus rex’s leg bones would have shattered under anything more than the stress of a brisk jog. Judging by its mass, muscle, and bones, Snively doesn’t believe an adult Tyrannosaurus rex could have moved faster than 12 or 13 miles per hour. (Though 12 miles per hour approaches the top speed of a typical human, depending on conditioning—it equates to a 20-second 100 meter dash or a 5-minute mile—the T. rex’s slow acceleration and inspiring teeth would give the average runner a reasonable chance of outsprinting or outmaneuvering the lumbering predator.)1

5. Robinhood Has Lured Young Traders, Sometimes With Devastating Results – Nathaniel Popper

But at least part of Robinhood’s success appears to have been built on a Silicon Valley playbook of behavioral nudges and push notifications, which has drawn inexperienced investors into the riskiest trading, according to an analysis of industry data and legal filings, as well as interviews with nine current and former Robinhood employees and more than a dozen customers. And the more that customers engaged in such behavior, the better it was for the company, the data shows.

More than at any other retail brokerage firm, Robinhood’s users trade the riskiest products and at the fastest pace, according to an analysis of new filings from nine brokerage firms by the research firm Alphacution for The New York Times.

In the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers, per dollar in the average customer account in the most recent quarter. They also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size, according to the analysis.

6. Do You Know the Difference Between Being Rich and Being Wealthy? – Jason Zweig

 Mr. Housel begins with a shocking anecdote he witnessed himself: A technology multimillionaire handed a hotel valet thousands of dollars in cash to go buy fistfuls of gold coins at a nearby jewelry store. The executive then flung the coins, worth about $1,000 apiece, into the Pacific Ocean one at a time, skipping them across the water like flat rocks, “just for fun.”

To that man, money was a plaything. (He later went broke, Mr. Housel writes.) To Ronald Read, however, money was possibility. Mr. Read spent decades pumping gas and working as a janitor in Brattleboro, Vt. After he died in 2014 at the age of 92, his estate was able to give more than $6 million to local charities—because he had scrimped and put every spare penny into stocks that he held for decades.

How, asks Mr. Housel, did a janitor “with no college degree, no training, no background, no formal experience and no connections massively outperform” many professional investors?

7. Those Astronomical Returns Aren’t What They Seem – Aaron Brown

Every so often there are news reports of someone generating seemingly impossible returns in the financial markets. Several media outlets reported recently that hedge fund manager Bill Ackman made a 9,530% return in March, turning $27 million into $2.6 billion. So-called tail-risk hedge fund Universa Investments LP posted a 4,144% return that same month.

Most people probably can’t easily process these numbers or relate them to more normal performance like earning 2% on a bond or 9% in an equity mutual fund. It feels like lottery-ticket territory, which breeds doubts that the results are true. This is unfortunate, because there is useful information in the reports, but it’s presented in a highly misleading way.

The best way to think about these gains is that they were essentially insurance payouts divided by a premium payment. For example, suppose you pay $100 per month for homeowner’s insurance on a house valued at $250,000. One day the house burns down and you collect $250,000. Would you call that a 249,900% return on the $100 monthly premium? No, you’d say you recouped 100% of the $250,000 pre-fire value of the house. You weren’t trying to make a good trade with your monthly premium payment, you were trying to protect the value of your housing investment.

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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.

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 2 August 2020:

1. The Ugly Scramble – Morgan Housel

There is no topic in business and investing that gets more attention than risk. But it’s almost always viewed through a universal lens: “What risks are we going to face in the future?” Or just simply, “What’s the economy going to do next?”

But risk has little to do with what’s going to happen next and a lot to do with how much you can endure, and how calmly you can react to, whatever happens next.

To the leveraged investor a small setback is a huge risk because of how they’re forced to deal with decline: by selling to cover their debts, right now, this moment, whatever the price is. Don’t think, just scramble to do you gotta do in the face of panic. They’re like the cat locking its limbs into place, doing whatever they can to survive even if it breaks them to pieces.

To the patient investor with a ton of cash, a huge market decline requires no immediate action. And not because it doesn’t affect them – it often does – but because however it affects them can be dealt with slowly and methodically. Maybe they realize they want a more conservative allocation. They can come to that conclusion after thinking it through, hearing opposing views, weighing alternatives, and calmly executing at the right time. Doing so may lead them to a different choice than their initial gut reaction. Taking time to understand a complicated problem often does.

2. Everyone’s a Day Trader Now – Michael Wursthorn, Mischa Frankl-Duval, and Gregory Zuckerman 

Much of the rapid-fire day trading culture plays out on social media, which has helped usher in a new class of social-media influencers who hype stocks to followers eager for get-rich-quick stock tips. They swap trading ideas over Twitter, Discord and Reddit, an update from the boiler-room chat rooms of the ’90s that sent dot-com stocks into a frenzy.

Stanley Barsch, Ms. Viswasam’s boss who got her into investing, touts the stocks he trades to his more than 76,000 Twitter followers, who refer to him by his handle, StanTheTradingMan. He also hosts his own Discord channel, where a tighter-knit group of day traders circulate unconfirmed rumors as potential catalysts for big gains.

Mr. Barsch, 42, is a former police officer turned real-estate broker, who said he had been making a steady six figures since 2010. Now, he boasts of how he says he turned the $20,000 he put into the market in January and February into more than $450,000 as of mid-July without any prior trading experience.

3. Statement by Jeff Bezos to the U.S. House Committee on the Judiciary – Jeff Bezos

In my view, obsessive customer focus is by far the best way to achieve and maintain Day One vitality. Why? Because customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and a constant desire to delight customers drives us to constantly invent on their behalf. As a result, by focusing obsessively on customers, we are internally driven to improve our services, add benefits and features, invent new products, lower prices, and speed up shipping times—before we have to. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it. And I could give you many such examples. Not every business takes this customer-first approach, but we do, and it’s our greatest strength.

Customer trust is hard to win and easy to lose. When you let customers make your business what it is, then they will be loyal to you—right up to the second that someone else offers them better service. We know that customers are perceptive and smart. We take as an article of faith that customers will notice when we work hard to do the right thing, and that by doing so again and again, we will earn trust. You earn trust slowly, over time, by doing hard things well—delivering on time; offering everyday low prices; making promises and keeping them; making principled decisions, even when they’re unpopular; and giving customers more time to spend with their families by inventing more convenient ways of shopping, reading, and automating their homes. As I have said since my first shareholder letter in 1997, we make decisions based on the long-term value we create as we invent to meet customer needs. When we’re criticized for those choices, we listen and look at ourselves in the mirror. When we think our critics are right, we change. When we make mistakes, we apologize. But when you look in the mirror, assess the criticism, and still believe you’re doing the right thing, no force in the world should be able to move you.

4. Earth’s Asteroid Impact Rate Took A Sudden Jump 290 Million Years Ago – Phil Plait

We know that there’s a lack of old craters on the Earth, and it’s always been assumed that’s due to erosion. Wind, water, geologic activity: Over long stretches of time our Earth remakes itself, scrubbing the surface of blemishes like impacts*.

But the evidence for this is lacking. That’s what initially motivated the scientists, to try to see if there’s a way to support this idea. So they looked to the Moon. Our satellite is in the same region of space we are, so should get hit at very close to the same rate as Earth does. The idea is to look at big craters on the Moon, figure out a way to get their ages, do the same on Earth, then compare the two and see what you find.

The problem is getting the lunar crater ages, since very few have absolute ages found for them. But they came up with a clever idea. In a big impact, one that leaves a crater 10 kilometers across or wider, rocks from the lunar bedrock get ejected from the explosion and deposited around the crater. Over long periods of time these erode. Not due to air or water, of course, since the Moon doesn’t have those.

Instead, they erode from tiny micrometeorites raining down constantly. These sandblast the rocks, slowly wearing them away (this doesn’t happen on Earth because our atmosphere stops them). Also, the temperature change from day to night on the Moon is hundreds of degrees Celsius. The rocks are constantly expanding and contracting from this, which causes them to crack and erode.

They figured that by looking at the abundance of rocks around a crater compared to the fine powdery eroded rock material (called regolith), they can get a relative age; craters with more intact rocks are younger, and ones with more eroded ones are older.

5. Bill Gates says 3 coronavirus treatments being tested now ‘could cut the death rate dramatically.’ They may be available within months. – Hilary Brueck

“The very first vaccine won’t be like a lot of vaccines, where it’s a 100% transmission-blocking and 100% avoids the person who gets the vaccine getting sick,” the billionaire philanthropist told Insider.

Vaccine trials take months, they don’t have to create completely effective inoculations, and they won’t help protect people who are already sick.

That’s why Gates is more excited, in the immediate term, about coronavirus therapeutics.

6. How a power-hungry CEO drained the light out of General Electric – Mary Kay Linge

 For years, GE’s profits had been a mirage built on whirlwind mergers and accounting sleight of hand. The funds that had been doled out to shareholders as fat dividends — and had covered its managers’ lavish perks and pay — had largely been borrowed on the strength of the company’s golden credit.

The book’s authors paint a damning portrait of Immelt’s 16 years at the helm of GE, where a rubber-stamp board of directors allowed him to hemorrhage money almost unchecked…

… At the same time, GE’s established divisions were expected to meet earnings goals far removed from reality. “Under Immelt, the company believed that the will to hit a target could supersede the math,” Gryta and Mann report.

It was a recipe for a disaster. Up-and-coming middle managers knew that a missed goal could stymie their climb up GE’s ladder; division heads “didn’t necessarily know how his underlings got to the finish line and it didn’t really matter,” the authors write.

Those toxic incentives drove the debacle that Flannery uncovered at GE Power. The division made its money not on the generators and turbines it built, but on the service contracts it sold to maintain the machines.

All a manager had to do was tweak the future cost estimates on those decades-long contracts to jack up profits as needed — and to paper over real losses from unsold inventory and declining demand.

7. Tweet storm from an executive who worked with Jeff Bezos to launch the Kindle – Dan Rose

Ignore the “institutional no”. Amazon’s core retail business was pummeled after dot-com crash, and we were still pulling out of the tail spin in 2004 when Jeff started the Kindle team (same year he started AWS team). Everyone told him it was a distraction, he ignored them.

Cannibalize yourself. Steve Kessel was running Amazon’s media business in 2004 (books/music/DVD’s). Books alone generated more than 50% of Amazon’s cash flow. Jeff fired Steve from his job and reassigned him to build Kindle. Steve’s new mission: destroy his old business…

… Make magic. Syncing over WiFi without cables was innovative, and our team was proud of it. But Jeff didn’t think it was magical enough. He insisted on syncing over cellular, and he didn’t want to charge the customer for data. We told him it couldn’t be done, he did it anyway.

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