Author: admin

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 13 June 2021:

1. #023 – The A/B sides of the Internet – China Playbook

What’s the number 1 competitive element in an industry?

It’s the status quo, not the competition between competitors. The US has a long commercial history, so many industries and businesses have developed very well over several generations. If we call the last generation companies as the conservatives, then the conservative forces in the US are very strong. In China, the conservative forces are very weak. 

When I just started working on the food delivery business, I conducted some market research and found something that surprised me.

The largest delivery site in the US is called Grubhub, but they only had hundreds of thousands of orders a day. Domino’s Pizza had more orders than it did! Big chains like McDonald’s and KFC didn’t want to work with Grubhub either because they can offer delivery themselves. The delivery service has become a standard in established F&B chains. Additionally, the Americans eat pretty much the same things every day, unlike the Chinese, we have a lot of varieties.

This led to the last-gen solution being rather satisfactory, leaving very little room the the next-gen solution.

From the research that I did at the time, there were only three companies in China focusing on food delivery. In total, their orders were less than 100K a day. There’s no wide consumer awareness [of this product experience]. Their finances were not great either. If we see them as our last-gen, when we started, they were very weak.

What does this mean? It means when we started, we were not just bringing the Internet to the food delivery industry, we were building the food delivery industry itself. In fact, since we’re building the food delivery industry itself, our impact to the industry is much greater than just digitalizing the industry, our commercial value would also be greater.

This is a core difference between China and the US. This is a core difference between China and the US. Considering all these factors, we can understand why American investors can’t understand Meituan.

Lastly, a simple judgment – for the LBS [location-based services] category, China is a much better market than the US due to our population density, labour cost, population size and generational competition…

…Categorizing also has implications for which products can be made into one app and which can’t.

Taobao and Alipay have huge traffic, but putting Ele.me there didn’t do much.

WeChat and its Moments have such great traffic, but Weibo is still thriving.

It’s also why Meituan is able to consolidate so many things into one app, because most of them are in B2.

Douyin and Toutiao are separate apps. They didn’t incorporate Douyin into Toutiao despite Toutiao’s huge traffic.

All these have to do with categorizing. Categorizing correctly involves core competencies, resource allocation, consumer psychology, and organisational abilities.

2. How SEA Tech Giants Solved The “Cold Start” Problem – David Fallarme

If you’re introducing a radically new operating model to the industry, your primary constraint will be supply. You’ll use high-touch tactics to onboard sellers. You’ll need to go where they are or tap into existing networks, then manually onboard them to make sure they’re good representatives of your platform.

If you’re competing within well-understood industry dynamics, then you’ll be constrained by demand. You’ll use tactics with high scalability. This could take the form of owning digital marketing channels where you have an unfair advantage, riding the wave of a media narrative, or localizing wider and faster than anyone else.

A final lesson not explicitly mentioned here is that the solving Cold Start Problem is already hard, but even harder in a fragmented market in Southeast Asia.

Solving it in one country doesn’t necessarily give you a tailwind to set up in another country, even if those countries are neighbors or can speak the same language. And when you think you’ve got it nailed, your market can suddenly turn into a red ocean.

3. An interview with Patrick Collison – Elad Gil and Patrick Collison

Elad Gil:
Stripe has done an amazing job both in terms of scaling and in terms of attracting people with common values and a shared interest in building infrastructure for the internet economy. I’d like to hear some of your thoughts on how to build a culture, and how to let it evolve.

To start, how do you see culture evolving as an organization scales, and what you think is important early versus later in that evolution?

Patrick Collison:
When it comes to culture, I think the main mistakes that companies make are being too precious about it, being too apologetic about it, and not treating it as dynamic and subject to revision.

Generally speaking, and certainly if a company is working well to some degree— if you’re making progress in building the product you want to build and the service you want to create, and if the organization is growing and customers are adopting—there are empirically some things about your culture that are working well. And I often see companies making a mistake by being too abashed about simply being specific about those.

For example, you might believe firmly in the importance of working hard. Or you might believe firmly in the importance of minute attention to detail to the degree that you’re willing to redo something five times over. What often happens is that companies allude to these things, but in overly oblique fashions. They’ll say, “We believe in the importance of commitment,” but won’t be concrete enough to say that, well, we want people who really want to pour their hearts into this for several years, and we expect this to be the singular focus of your working life.

Similarly, on the attention-to-detail front, it’s easy to describe things in overly milquetoast terms without being really explicit, like: “If you work with us, you’re going to have to be okay with your work being repeatedly designated as inadequate, and okay with it being redone several times over.” These aren’t things that everyone is looking for. And you’re going to have to be okay with some people having that conversation with you and deciding that it’s not for them.

If you aren’t having these explicit conversations about what your culture is, the downsides are threefold: You don’t have the right people joining you, and you’re being unfair to those who do join you, in the sense that they end up being surprised by this emergent friction and tension in work styles. Thirdly, and I think this may be the non-obvious one, people’s disposition with regard to the company is actually a function of what they feel like they signed up for. If they feel like they signed up for an all-encompassing project, they’ll be much more willing to treat it that way than if they discovered it by surprise later on. And so you can actually change the outcome simply by being explicit at the outset…

…Elad:
How do you think about reinforcing or reminding employees about an organization’s cultural values? Do you incorporate it as part of performance reviews, incorporating it into weekly all-hands?

Patrick:
I think the macro thing to bear in mind with a lot of culture stuff is that a rapidly scaling human organization is an unnatural thing. The vast majority of human organizations that we have experience with, be it the school, the family, the university, the local community, the church, whatever, these are not organizations that scale really rapidly. And so the cues and the lessons and the habits you might learn from them are not necessarily going to be sufficient for the kind of human organization you’re building, which is perhaps doubling—or even more—in size, year over year.

As a consequence of that, you’ll often hear people talk about things like using explicit cultural values in performance reviews or in weekly all-hands. And you think, “Well, most of the other human organizations I see don’t do that,” and so it seems sort of contrived or whatever. But the difference is that you actually have a much more difficult challenge, which is to maintain a high degree of cohesion despite the really rapid evolution in the group of constituent participants.

So I’m a big fan of all the things you just mentioned. I think most companies start to explicitly encode and articulate their principles or values too late. I would try to produce a provisional revision literally when you’re just a handful of people. Then continue to update it on an ongoing basis, because assuredly there will be things you realize or come to appreciate are wrong over the course of the company.

But I would start with something right from the outset. And I would absolutely weave it into your product development, your collective communications with each other, your decision-making in general. For example, when you’re choosing the right series A investors, say, I think it would be ideal if the principles by which you ran the organization and the culture internally could help guide you to the right kind of investor for the company…

…Elad:
As you look across the Valley now, it seems like there have been some shifts that have created almost a culture of entitlement. People get enormous benefits, then start to complain about things that may not be that important, like the number of times they can get a free haircut on campus. How do you manage that? As people get bigger and bigger benefits, how do you make sure they don’t feel that they deserve everything?

Patrick:
I think that this is simply a challenge that we collectively have in the U.S. and in the Bay Area in this era of history. Such wealth has been created by our predecessors that we’re short-term benefiting from that it’s easy for that to have spillover effects in the culture and to distract from focus or lead to a loss of determination.

And again, if you just study and read a little about the early days, and ideally talk to people who were around, you see that at the first semiconductor companies and the early software companies and, up to Seattle, early Amazon and Microsoft, there was nothing to be entitled about. People thought that software companies were inconsequential add-ons to the hardware. They were dismissed, they were subject to brutal release cycles, companies were going out of business left, right, and center, there was a lot of concern over competition from Asia. It was a tough market to grow up in. Of course the survivors have done well. But while people are attuned to how successful a cradle for technology Silicon Valley is, they pay less attention to, and are I think less aware of, how densely populated a graveyard it is.

And so while I think that selective pressure was good for the surviving companies, it really kind of screws with our intuitive sense for what’s required to actually build one of these. You have some early success or you raise series A or gain some early traction, and it’s easy, even subconsciously, to start lining up the plots in your head: “Well, Facebook raised its series A in 2005, and went on to be worth $15 billion in 2008 or 2009 or whatever it was,” and so on. And I think the effects of that, in blunt terms, are really pernicious. In many ways it’s harder to create an organization with the kind of focused, determined, disciplined, non-complacent mindset that you need today than it was 20 or 30 years ago. That’s just a structural headwind that we all face.

There are many natural benefits and tailwinds that Silicon Valley enjoys, but I think this is one of the challenges we face. And if Silicon Valley is supplanted by another region, or even just more broadly by a general diffusion, I think this is one of the top contenders as to why that would be the case. It’s because we had too much wealth, we had too much early success, and it caused us to lose our hunger and our edge.

People who’ve spent any time with the great software companies in China— JD, Tencent, Alibaba, and now the next generation of startups—will tell you in no uncertain terms that there is a lack of entitlement, a lack of complacency, and a real determination to succeed that is at least not uniformly present here in Silicon Valley. And so I really think it’s something that should be top of mind for everyone.

4. Boxes, trucks and bikes – Ben Evans

The traditional way to think about ecommerce penetration is to look at share of total retail sales, and then deduct things like car repair, gasoline and restaurants – to get to ‘addressable retail’. On that basis, US ecommerce was at 16% penetration at the end of 2019 and increased to 20% or so in 2020, adding 12-18 months of growth in a year. 

The obvious problem with this analysis is that penetration of different retail categories varies a huge amount – penetration of makeup is different to books, which is different to shoes. This reflects how different the buying journey can be for different kinds of products – we sometimes talk about ‘high touch’ versus ‘low touch’ goods. The chart hides a lot of variation.

However, there’s also another way to split this, that I think is becoming increasingly important – instead of looking at the product category and the buying journey, look at the logistics model.

For Amazon, makeup, books and shoes are all just interchangeable SKUs with the same buying journey that can all be stored in the same fulfilment pod and all go into the same brown cardboard box, but a cucumber, a stove, a bag of cement or a bowl of soup do not fit this model at all – they might need a different buying journey, but they definitely need a different logistics model. So, as well as thinking in terms of hardline versus softline, or high touch versus low touch, we should also think of parcels versus collection or delivery versus bikes.

5. Getting the Goalpost to Stop Moving – Morgan Housel

Paul Graham wrote a few years ago about what happened to the U.S. economy after World War II:

“The effects of World War II were both economic and social. Economically, it decreased variation in income. Like all modern armed forces, America’s were socialist economically. From each according to his ability, to each according to his need. More or less. Higher ranking members of the military got more (as higher ranking members of socialist societies always do), but what they got was fixed according to their rank. And the flattening effect wasn’t limited to those under arms, because the US economy was conscripted too. Between 1942 and 1945 all wages were set by the National War Labor Board. Like the military, they defaulted to flatness.”

Indeed, a few years after the war historian Frederick Lewis Allan wrote:

“The enormous lead of the well-to-do in the economic race has been considerably reduced. It is the industrial workers who as a group have done best – people such as a steelworker’s family who used to live on $2,500 and now are getting $4,500, or the highly skilled machine-tool operator’s family who used to have $3,000 and now can spend an annual $5,500 or more. As for the top one percent, the really well-to-do and the rich, whom we might classify very roughly indeed as the $16,000-and-over group, their share of the total national income, after taxes, had come down by 1945 from 13 percent to 7 percent.”

This went beyond income – even the variation in consumer goods flattened out. Harper’s Magazine wrote something in 1957 that was so important to the era:

“The rich man smokes the same sort of cigarettes as the poor man, shaves with the same sort of razor, uses the same sort of telephone, vacuum cleaner, radio, and TV set, has the same sort of lighting and heating equipment in his house, and so on indefinitely. The differences between his automobile and the poor man’s are minor. Essentially they have similar engines, similar fittings. In the early years of the century there was a hierarchy of automobiles.”

If you look at the 1950s and ask what was different that made it feel so great?, this is your answer. The gap between you and most of the people around you wasn’t large. It created an era where it was easy to keep your expectations in check because few people lived dramatically better than you.

It’s the one thing – maybe the only thing – that distinguishes itself from other periods.

The lower wages felt great because they’re what everyone else earned.

The smaller homes felt nice because everyone else lived in one too.

The lack of healthcare was acceptable because your neighbors were in the same circumstances.

Hand-me-downs were acceptable clothes because everyone else wore them.

Camping was an adequate vacation because that’s what everyone else did.

It was the one modern era when there wasn’t much social pressure to increase your expectations beyond your income. Economic growth accrued straight to happiness. People weren’t just better off; they felt better off.

And it was short-lived, of course.

By the early 1980s the post-war togetherness that dominated the 1950s and 1960s gave way to more stratified growth where many people plodded along while a few grew exponentially. The glorious lifestyles of the few inflated the aspirations of the many.

Rockefeller never yearned for Advil because he didn’t know it existed. But modern inequality mixed with social media has made it so you do know that people drive Lamborghinis and fly in private jets and send their kids to expensive schools. The ability to say, “I want that, why don’t I have that? Why does he get it but I don’t?” is so much greater now than it was just a few generations ago.

Today’s economy is good at creating two things: wealth, and the ability to show off wealth. Part of that is great, because saying “I want that too” is such a powerful motivator of progress. Yet the point stands: We might have higher incomes, more wealth, and bigger homes – but it’s all so quickly smothered by inflated expectations.

That, in many ways, has been the defining characteristic of the last 40 years of economic growth. And Covid-19 pushed the trend into hyperdrive.

The point isn’t to say the 1950s were better or fairer or even that we should strive to rebuild the old system – that’s a different topic.

But nostalgia for the 1950s is one of the best examples of what happens when expectations grow faster than incomes.

And all of us, no matter how much we earn, should ask how we can avoid the same fate.

6. How Startup Founders in Southeast Asia Should Value Their Company – Monk’s Hill Ventures

One of the real challenges Series A founders face is identifying a reasonable valuation for their business before they engage with VCs. At MHV, Peng’s team looks for ‘win-win’ valuation scenarios where both founders and investors agree on valuations that reflect first principles.

Founders need to avoid making the mistake of calling out a company’s valuation upfront. As a founder, you’re typically focused on your own business – and rightly so. However, this means that walking in with a ready-to-go valuation is a mistake. Simply put, you’re going to be wrong when you propose a valuation because you’re not the experienced party. VC’s like MHV see 50 – or more – deals a year in your domain, and see valuations across the board.

Instead, Peng suggests there’s a good way to answer the question about what your company’s valuation is – and that’s to not reference yourself.

“For instance, you could say something like ‘I’ve seen another company get funded at this level and the revenues were X, and the valuation was in Y range’. Give two or three examples. That’s how you answer that question. It shows you’re smart enough not to put forward a number you’re not sure about.” Indicate that you’re fine with what the market offers.

Founders need to take onboard that the principle of a win-win is all about both parties bringing an educated view of a company’s valuation to the table. Being educated means doing your homework and knowing how similar companies in your sector, region, and stage of growth are valued. The idea is to settle somewhere in a range where both parties think it could have been better for them but come out saying ‘it’s reasonable’.

Later in the session, one founder asked Peng whether one approach founders may employ is to establish how much they need to raise based on their strategic goals.

“Absolutely. If I asked what the valuation is for your company, as a founder, that’s something you should avoid answering upfront.”

“But then if I asked how much you need to raise, which is a typical follow-on question, then you’d better have that answer and be able to back it up.”

7. What is Zero Trust? – Muji

Today’s enterprise networks are fractured, moving farther and farther away from a centralized location. Zero Trust is the next-gen security paradigm that is capable of helping to secure today’s scattered networks, but it’s becoming so heavily used a term that the definition is getting blurred.

Let’s look at what Zero Trust is solving, how the ecosystem has evolved, and look at the moves major players like CrowdStrike, Okta, Cloudflare and Zscaler are making within it.

Traditionally, the primary usage of an enterprise network is interconnecting infrastructure which runs services hosted internally, handling traffic from enterprise users who use some type of device to access the network. Remote workers had to use connection tools, like a VPN, in order to get onto the trusted company network to access internal services.

The old method of castle & moat security, where you maintained a trusted network across all of your enterprise infrastructure, apps, devices and users – with a secure perimeter around it all – is becoming a thing of the past, as all of those areas continue to sprawl outside of the perimeter (and IT’s grasp).

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, we currently have a vested interest in Amazon, Facebook, Meituan, Okta, and Tencent (owner of WeChat). 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 06 June 2021:

1. The Cost of Cloud, a Trillion Dollar Paradox – Sarah Wang and Martin Casado

However, as industry experience with the cloud matures — and we see a more complete picture of cloud lifecycle on a company’s economics — it’s becoming evident that while cloud clearly delivers on its promise early on in a company’s journey, the pressure it puts on margins can start to outweigh the benefits, as a company scales and growth slows. Because this shift happens later in a company’s life, it is difficult to reverse as it’s a result of years of development focused on new features, and not infrastructure optimization. Hence a rewrite or the significant restructuring needed to dramatically improve efficiency can take years, and is often considered a non-starter.

Now, there is a growing awareness of the long-term cost implications of cloud. As the cost of cloud starts to contribute significantly to the total cost of revenue (COR) or cost of goods sold (COGS), some companies have taken the dramatic step of “repatriating” the majority of workloads (as in the example of Dropbox) or in other cases adopting a hybrid approach (as with CrowdStrike and Zscaler). Those who have done this have reported significant cost savings: In 2017, Dropbox detailed in its S-1 a whopping $75M in cumulative savings over the two years prior to IPO due to their infrastructure optimization overhaul, the majority of which entailed repatriating workloads from public cloud.

Yet most companies find it hard to justify moving workloads off the cloud given the sheer magnitude of such efforts, and quite frankly the dominant, somewhat singular, industry narrative that “cloud is great”. (It is, but we need to consider the broader impact, too.) Because when evaluated relative to the scale of potentially lost market capitalization — which we present in this post — the calculus changes. As growth (often) slows with scale, near term efficiency becomes an increasingly key determinant of value in public markets. The excess cost of cloud weighs heavily on market cap by driving lower profit margins.

2. Twitter thread that rebuts the “The Cost of Cloud, a Trillion Dollar Paradox” article – Zack Kanter

Excellent *financial* analysis of using *commoditized* cloud infrastructure (vanilla servers). It misses: i) the (long-term devastating) cultural cost of recruiting world-class engineers to do undifferentiated heavy lifting; ii) it’s unfeasible to recreate noncommodity infra. 1/n

On i: saving 50% on COGS sounds great – until you realize that it means recruiting & retaining engineers instead of paying an AWS/GCP invoice. Opportunities to buy technical competence with a credit card are extremely rare; you can’t buy core product competence per API call. 2/n

Every sufficiently-funded software CEO on earth will tell you that their constraining factor is hiring great engineering talent – repatriating commodity servers to save on COGS means increasing engineering headcount requirements, definitionally making the constraint worse. 3/n

It follows that the optimal strategy is to do *the exact opposite* of reducing third-party API COGS: fanatically review labor COGS and shift it to third-party API COGS wherever possible – regardless of cost! You’re effectively buying autoscaling, on-demand top talent. 4/n..

…Part ii [it’s unfeasible to recreate noncommodity infra]: if you look at what your cloud provider is doing for you & your takeaway is “we could do this cheaper ourselves,” then your problem is you’re using the cloud incorrectly by choosing lowest common denominator services. 8/n

Instead of saying “we can run servers ourselves for cheaper,” you should be asking: how can we use AWS/GCP in ways that we couldn’t possibly do better ourselves? This is called “servicefull” architecture – using your provider’s cloud-native services to replace server code. 9/n

If you’re using AWS/GCP to run vanilla servers, you’re building software to work the same way it did when companies ran servers in their office 15 yrs ago. That should be a wake up call about your technology choices – not a call to put servers back in your figurative office. 10/n

3. How the World Ran Out of Everything – Peter S. Goodman and Niraj Chokshi

The most prominent manifestation of too much reliance on Just In Time is found in the very industry that invented it: Automakers have been crippled by a shortage of computer chips — vital car components produced mostly in Asia. Without enough chips on hand, auto factories from India to the United States to Brazil have been forced to halt assembly lines.

But the breadth and persistence of the shortages reveal the extent to which the Just In Time idea has come to dominate commercial life. This helps explain why Nike and other apparel brands struggle to stock retail outlets with their wares. It’s one of the reasons construction companies are having trouble purchasing paints and sealants. It was a principal contributor to the tragic shortages of personal protective equipment early in the pandemic, which left frontline medical workers without adequate gear.

Just In Time has amounted to no less than a revolution in the business world. By keeping inventories thin, major retailers have been able to use more of their space to display a wider array of goods. Just In Time has enabled manufacturers to customize their wares. And lean production has significantly cut costs while allowing companies to pivot quickly to new products.

These virtues have added value to companies, spurred innovation and promoted trade, ensuring that Just In Time will retain its force long after the current crisis abates. The approach has also enriched shareholders by generating savings that companies have distributed in the form of dividends and share buybacks.

Still, the shortages raise questions about whether some companies have been too aggressive in harvesting savings by slashing inventory, leaving them unprepared for whatever trouble inevitably emerges.

“It’s the investments that they don’t make,” said William Lazonick, an economist at the University of Massachusetts.

Intel, the American chip-maker, has outlined plans to spend $20 billion to erect new plants in Arizona. But that is less than the $26 billion that Intel spent on share buybacks in 2018 and 2019 — money the company could have used to expand capacity, Mr. Lazonick said.

Some experts assume that the crisis will change the way companies operate, prompting some to stockpile more inventory and forge relationships with extra suppliers as a hedge against problems. But others are dubious, assuming that — same as after past crises — the pursuit of cost savings will again trump other considerations…

…Just In Time was itself an adaptation to turmoil, as Japan mobilized to recover from the devastation of World War II.

Densely populated and lacking in natural resources, Japan sought to conserve land and limit waste. Toyota eschewed warehousing, while choreographing production with suppliers to ensure that parts arrived when needed.

By the 1980s, companies around the globe were emulating Toyota’s production system. Management experts promoted Just In Time as a way to boost profits.

“Companies that run successful lean programs not only save money in warehouse operations but enjoy more flexibility,” declared a 2010 McKinsey presentation for the pharmaceutical industry. It promised savings of up to 50 percent on warehousing if clients embraced its “lean and mean” approach to supply chains.

Such claims have panned out. Still, one of the authors of that presentation, Knut Alicke, a McKinsey partner based in Germany, now says the corporate world exceeded prudence.

“We went way too far,” Mr. Alicke said in an interview. “The way that inventory is evaluated will change after the crisis.”

Many companies acted as if manufacturing and shipping were devoid of mishaps, Mr. Alicke added, while failing to account for trouble in their business plans.

“There’s no kind of disruption risk term in there,” he said.

4. Can Apple Change Ads – Ben Evans

Apple regards itself not just as a platform provider but as a system provider. Your iPhone is a system, and Apple decides how it works and what developers can do on it, and just as Apple controls security, wireless networking, power management or multi-tasking, it also controls privacy. This year Apple started requiring apps to get permission before sharing information to track users across different sites (‘ATT’), just as the EU and California’s cookie laws have required the same on the web. The main reason to do this tracking is to make advertising more relevant (and therefore more valuable for publishers), and ATT, cookie laws, and Apple and Google’s decision to block third party cookies on the web anyway, in Safari and Chrome, all mean that the foundation of a lot of online advertising has collided with privacy and shattered, with very little clarity on what comes next.

In parallel, Apple has built up its own ad system on the iPhone, which records, tracks and targets users and serves them ads, but does this on the device itself rather than on the cloud, and only its own apps and services. Apple tracks lots of different aspects of your behaviour and uses that data to put you into anonymised interest-based cohorts and serve you ads that are targeted to your interests, in the App Store, Stocks and News apps. You can read Apple’s description of that here – Apple is tracking a lot of user data, but nothing leaves your phone. Your phone is tracking you, but it doesn’t tell anyone anything.

This is conceptually pretty similar to Google’s proposed FLoC, in which your Chrome web browser uses the web pages you visit to put you into anonymised interest-based cohorts without your browsing history itself leaving your device. Publishers (and hence advertisers) can ask Chrome for a cohort and serve you an appropriate ad rather than tracking and targeting you yourself. Your browser is tracking you, but it doesn’t tell anyone anything -except for that anonymous cohort.

Google, obviously, wants FLoC to be a generalised system used by third-party publishers and advertisers. At the moment, Apple runs its own cohort tracking, publishing and advertising as a sealed system. It has begun selling targeted ads inside the App Store (at precisely the moment that it crippled third party app install ads with IDFA), but it isn’t offering this tracking and targeting to anyone else. Unlike FLoC, an advertiser, web page or app can’t ask what cohort your iPhone has put you in – only Apple’s apps can do that, including the app store.

So, the obvious, cynical theory is that Apple decided to cripple third-party app install ads just at the point that it was poised to launch its own, and to weaken the broader smartphone ad model so that companies would be driven towards in-app purchase instead. (The even more cynical theory would be that Apple expects to lose a big chunk of App Store commission as a result of lawsuits and so plans to replace this with app install ads. I don’t actually believe this – amongst other things I think Apple believes it will win its Epic and Spotify cases.)

Much more interesting, though, is what happens if Apple opens up its cohort tracking and targeting, and says that apps, or Safari, can now serve anonymous, targeted, private ads without the publisher or developer knowing the targeting data. It could create an API to serve those ads in Safari and in apps, without the publisher knowing what the cohort was or even without knowing what the ad was. What if Apple offered that, and described it as a truly ‘private, personalised’ ad model, on a platform with at least 60% of US mobile traffic, and over a billion global users?

5. Explained: Neural networks – Larry Hardesty

Deep learning is in fact a new name for an approach to artificial intelligence called neural networks, which have been going in and out of fashion for more than 70 years. Neural networks were first proposed in 1944 by Warren McCullough and Walter Pitts, two University of Chicago researchers who moved to MIT in 1952 as founding members of what’s sometimes called the first cognitive science department.

Neural nets were a major area of research in both neuroscience and computer science until 1969, when, according to computer science lore, they were killed off by the MIT mathematicians Marvin Minsky and Seymour Papert, who a year later would become co-directors of the new MIT Artificial Intelligence Laboratory.

The technique then enjoyed a resurgence in the 1980s, fell into eclipse again in the first decade of the new century, and has returned like gangbusters in the second, fueled largely by the increased processing power of graphics chips…

…Neural nets are a means of doing machine learning, in which a computer learns to perform some task by analyzing training examples. Usually, the examples have been hand-labeled in advance. An object recognition system, for instance, might be fed thousands of labeled images of cars, houses, coffee cups, and so on, and it would find visual patterns in the images that consistently correlate with particular labels.

Modeled loosely on the human brain, a neural net consists of thousands or even millions of simple processing nodes that are densely interconnected. Most of today’s neural nets are organized into layers of nodes, and they’re “feed-forward,” meaning that data moves through them in only one direction. An individual node might be connected to several nodes in the layer beneath it, from which it receives data, and several nodes in the layer above it, to which it sends data.

To each of its incoming connections, a node will assign a number known as a “weight.” When the network is active, the node receives a different data item — a different number — over each of its connections and multiplies it by the associated weight. It then adds the resulting products together, yielding a single number. If that number is below a threshold value, the node passes no data to the next layer. If the number exceeds the threshold value, the node “fires,” which in today’s neural nets generally means sending the number — the sum of the weighted inputs — along all its outgoing connections.

When a neural net is being trained, all of its weights and thresholds are initially set to random values. Training data is fed to the bottom layer — the input layer — and it passes through the succeeding layers, getting multiplied and added together in complex ways, until it finally arrives, radically transformed, at the output layer. During training, the weights and thresholds are continually adjusted until training data with the same labels consistently yield similar outputs.

6. Ant Group searches for direction in a new era of Chinese fintech – AJ Cortese

When Ant Group, then Ant Financial, launched its mobile payment service Alipay in 2004, it was meant to be a complementary function to improve shoppers’ checkout experience on e-commerce marketplace Taobao. Few could have predicted the main role it would go on to play in the development of mobile payments in China.

Ant Financial was spun off from Alibaba in 2014, with Alipay as its core business. The mobile payment platform generated the majority of the firm’s revenue until 2018. However, as Ant’s business strategy began to shift in 2019 to cultivate different growth engines based on new digital financial services, Alipay’s central role began to vanish, with the e-wallet generating only 36% of the firm’s total revenue in 2020. At the same time, the company’s credit services alone accounted for a whopping 40% of total revenues for Ant Group in the first half of 2020.

In July 2020, Ant Financial was rebranded as Ant Group to better reflect its role as “an innovative global technology provider” for businesses and financial institutions. Ant leveraged Alipay’s 900 million users to create a one-stop marketplace for financial products, including short and long-term credit loans, insurance products, and wealth management offerings. The restructuring and the new offerings were the special sauce that powered the company to within arm’s reach of the world’s largest IPO.

Leading up to the IPO in March 2020, Ant Group’s former CEO, Simon Hu, unveiled a new horizontal strategy for Alipay, looking to expand the range of services available on the platform, from food delivery to travel bookings. Alipay’s Chinese slogan was changed from the mundane but functional “Use Alipay to make payments” to the broader and catchier “Live well, Alipay.”

However, following the stalled IPO and new regulations severely limiting cash machine loan products like Huabei and Jiebei—which can no longer be offered as direct payment options—Alipay is back at the center of Ant Group’s thinking, also fueled by an announcement from the People’s Bank of China (PBOC) in December 2020, clearly instructing Ant Group to “return to its roots in payments.”

Despite the changes, Ant Group’s range of offerings will not be limited to just mobile payments. The company can still offer a wide range of services as long as it stays away from lending. In fact, the firm is actively onboarding service providers, aiming to reach 50,000 in total by 2023, up from 10,000 in mid-2020. This service-oriented approach represents the next logical development in Alipay’s maturation…

…Just this week, Alipay was incorporated in the PBOC’s digital yuan rollout pilot program, which expanded its scope to include private operators like Ant Group and Tencent. Alipay and WeChat Pay are likely to maintain a prominent position in the future when the digital yuan will be rolled out at scale.

“It is a misconception that the digital yuan is meant to be a direct competitor to Alipay and WeChat. In fact, the expanded rollout of the digital yuan will allow new industries, payment flows, and data to be digitized in areas like employee salaries,” Turrin explained.

Instead of routing worker’s wages through a bank’s system to then be transferred into a digital wallet like Alipay, salaries could be directly integrated into these wallets using the digital yuan, Turrin said. Going forward, the aim is to facilitate more use cases for the digital currency, which is reliant on consumer platforms like Alipay. “The digital yuan will fail without these types of consumer platforms,” Turrin said.

“It is not a zero-sum game where the central bank’s digital currency takes market share away from the payment platforms. Actually, the digital yuan will enlarge the overall size of the digital payment pie,” he added.

If China’s digital yuan isn’t meant to cut into Alipay and WeChat’s duopoly in mobile payments, the two payment platforms will likely retain and even reinforce their dominant positions, especially as other verticals of their businesses face regulatory challenges.

7. Own The Internet – Packy McCormick

What if I told you about a business with strong network effects and 200x YoY revenue growth that was preparing to offer a 25% dividend and implement a permanent share buyback program? Is that something you might be interested in?

That’s pretty much Ethereum. It’s one of the most fascinating and compelling assets in the world, but its story is obfuscated by complexity and the specter of crypto.

Ethereum is so many things at once, all of which feed off of each other. Ethereum, the blockchain, is a world computer, the backbone of a decentralized internet (web3), and the settlement layer for web3. Its cryptocurrency, Ether (ETH), is a bunch of things, too:

• Internet money.
• Ownership of the Ethereum network.
• The most commonly-used token in the Great Online Game.
• Yield-generating.
• A Store of Value (SoV).
• A bet on more on-chain activity, or the web3 future. 

Because Ethereum is so much at once, it’s hard to understand. This post is an attempt to help Ethereum be understood. To a group like us, people interested in technology businesses, finance, and strategy, it’s much more fascinating than bitcoin, but that comes with a tradeoff. It’s much harder to grok than bitcoin, and because of that, it hasn’t gotten the mainstream or institutional attention that bitcoin has…

…Ethereum is so much more than a cryptocurrency. It’s a “world computer,” and the “value layer” of the internet. It lets people build apps and products with money baked into the code. If you believe that web3 is going to continue to grow, then you likely believe that over time, Ethereum will become the settlement layer of a new internet. All sorts of transactions, whether they happen on Ethereum, another blockchain, or even Visa, will turn to Ethereum to exchange funds and keep secure, immutable records. A year ago, I wouldn’t have said that.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, we currently have a vested interest in Alphabet (parent of Google), Apple, and Tencent (parent of TenPay). 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 30 May 2021:

1. How to Do Long Term – Morgan Housel

Saying you have a 10-year time horizon doesn’t exempt you from all the nonsense that happens during the next 10 years. Everyone has to experience the recessions, the bear markets, the meltdowns, the surprises and the memes at the same time.

So rather than assuming long-term thinkers don’t have to deal with nonsense, the question becomes how can you endure a neverending parade of nonsense.

Long-term thinking can be a deceptive safety blanket that people assume lets them bypass the painful and unpredictable short run. But it never does. It might be the opposite: The longer your time horizon the more calamities and disasters you’ll experience. Baseball player Dan Quisenberry once said, “The future is much like the present, only longer.”…

…An investment manager who loses 40% can tell his investors, “It’s OK, we’re in this for the long run,” and believe it. But the investors may not believe it. They might bail. The firm might not survive. Then even if the manager turns out to be right, it doesn’t matter – no one’s around to benefit.

The same thing happens when you have the guts to stick it out but your spouse doesn’t.

Or when you have a great idea that will take time to prove, but your boss and coworkers aren’t as patient.

These are not rarities. They’re some of the most common outcomes in investing.

A lot of it comes from the gap between what you believe and what you can convince other people of. Intelligence vs. storytelling.

People mock how much short-term thinking there is in the financial industry, and they should. But I also get it: The reason so many financial professionals stray towards short-termism is because it’s the only way to run a viable business when customers flee at the first sign of trouble. But the reason customers flee is often because investors have done such a poor job communicating how investing works, what their strategy is, what they should expect as an investor, and how to deal with inevitable volatility and cyclicality.

Eventually being right is one thing. But can you eventually be right and convincing to those whose support you rely on? That’s completely different, and easy to overlook.

2. Project Starline: Feel like you’re there, together – Clay Bavor

Through the years, we’ve built products to help people feel more connected. We’ve simplified email with Gmail, and made it easier to share what matters with Google Photos and be more productive with Google Meet. But while there have been advances in these and other communications tools over the years, they’re all a far cry from actually sitting down and talking face to face.

We looked at this as an important and unsolved problem. We asked ourselves: could we use technology to create the feeling of being together with someone, just like they’re actually there?

To solve this challenge, we’ve been working for a few years on Project Starline — a technology project that combines advances in hardware and software to enable friends, families and coworkers to feel together, even when they’re cities (or countries) apart.

Imagine looking through a sort of magic window, and through that window, you see another person, life-size and in three dimensions. You can talk naturally, gesture and make eye contact.

To make this experience possible, we are applying research in computer vision, machine learning, spatial audio and real-time compression. We’ve also developed a breakthrough light field display system that creates a sense of volume and depth that can be experienced without the need for additional glasses or headsets.

The effect is the feeling of a person sitting just across from you, like they are right there.

One of the things we are most proud of is that as soon as you sit down and start talking, the technology fades into the background, and you can focus on what’s most important: the person in front of you.

Project Starline is currently available in just a few of our offices and it relies on custom-built hardware and highly specialized equipment. We believe this is where person-to-person communication technology can and should go, and in time, our goal is to make this technology more affordable and accessible, including bringing some of these technical advancements into our suite of communication products.

3. How Humanity Gave Itself an Extra Life – Steven Johnson

The period from 1916 to 1920 marked the last point in which a major reversal in global life expectancy would be recorded. (During World War II, life expectancy did briefly decline, but with nowhere near the severity of the collapse during the Great Influenza.) The descendants of English and Welsh babies born in 1918, who on average lived just 41 years, today enjoy life expectancies in the 80s. And while Western nations surged far ahead in average life span during the first half of the last century, other nations have caught up in recent decades, with China and India having recorded what almost certainly rank as the fastest gains of any society in history. A hundred years ago, an impoverished resident of Bombay or Delhi would beat the odds simply by surviving into his or her late 20s. Today average life expectancy in India is roughly 70 years.

In effect, during the century since the end of the Great Influenza outbreak, the average human life span has doubled. There are few measures of human progress more astonishing than this. If you were to publish a newspaper that came out just once a century, the banner headline surely would — or should — be the declaration of this incredible feat. But of course, the story of our extra life span almost never appears on the front page of our actual daily newspapers, because the drama and heroism that have given us those additional years are far more evident in hindsight than they are in the moment. That is, the story of our extra life is a story of progress in its usual form: brilliant ideas and collaborations unfolding far from the spotlight of public attention, setting in motion incremental improvements that take decades to display their true magnitude…

…How did this great doubling of the human life span happen? When the history textbooks do touch on the subject of improving health, they often nod to three critical breakthroughs, all of them presented as triumphs of the scientific method: vaccines, germ theory and antibiotics. But the real story is far more complicated. Those breakthroughs might have been initiated by scientists, but it took the work of activists and public intellectuals and legal reformers to bring their benefits to everyday people. From this perspective, the doubling of human life span is an achievement that is closer to something like universal suffrage or the abolition of slavery: progress that required new social movements, new forms of persuasion and new kinds of public institutions to take root. And it required lifestyle changes that ran throughout all echelons of society: washing hands, quitting smoking, getting vaccinated, wearing masks during a pandemic…

…The first life-expectancy tables were calculated in the late 1600s, during the dawn of modern statistics and probability. It turned out to be one of those advances in measurement that transform the thing being measured: By following changes in life expectancy over time, and comparing expected life among different populations, it became easier to detect inequalities in outcomes, perceive long-term threats and track the effects of promising health interventions more accurately. Demographers now distinguish between life expectancies at different ages. In a society with very high infant mortality, life expectancy at birth might be 20, because so many people die in the first days of life, pulling the overall number down, while life expectancy at 20 might easily be in the 60s. The doubling of life expectancy over the past century is a result of progress at both ends of the age spectrum: Children are dying far less frequently, and the elderly are living much longer. Centenarians are projected to be the fastest-growing age group worldwide.

One strange thing about the story of global life expectancy is how steady the number was for almost the entirety of human history. Until the middle of the 18th century, the figure appears to have rarely exceeded a ceiling of about 35 years, rising or falling with a good harvest or a disease outbreak but never showing long-term signs of improvement. A key factor keeping average life expectancy low was the shockingly high rates of infant and childhood mortality: Two in five children perished before reaching adulthood. Human beings had spent 10,000 years inventing agriculture, gunpowder, double-entry accounting, perspective in painting — but these undeniable advances in collective human knowledge failed to move the needle in one critical category: how long the average person could expect to live…

…The decade following the initial mass production of antibiotics marked the most extreme moment of life-span inequality globally. In 1950, when life expectancy in India and most of Africa had barely budged from the long ceiling of around 35 years, the average American could expect to live 68 years, while Scandinavians had already crossed the 70-year threshold. But the post-colonial era that followed would be characterized by an extraordinary rate of improvement across most of the developing world. The gap between the West and the rest of the world has been narrowing for the past 50 years, at a rate unheard-of in demographic history. It took Sweden roughly 150 years to reduce childhood mortality rates from 30 percent to under 1 percent. Postwar South Korea pulled off the same feat in just 40 years. India nearly doubled life expectancy in just 70 years; many African nations have done the same, despite the ravages of the AIDS epidemic. In 1951, the life-span gap that separated China and the United States was more than 20 years; now it is just two.

The forces behind these trends are complex and multivariate. Some of them involve increasing standards of living and the decrease in famine, driven by the invention of artificial fertilizer and the “green revolution”; some of them involve imported medicines and infrastructure — antibiotics, chlorinated drinking water — that were developed earlier. But some of the most meaningful interventions came from within the Global South itself, including a remarkably simple but powerful technique called oral rehydration therapy.

One endemic disease that kept life expectancies down in low-income countries was cholera, which kills by creating severe dehydration and electrolyte imbalance, caused by acute diarrhea. In some extreme cases, cholera victims have been known to lose as much as 30 percent of their body weight through expelled fluids in a matter of hours. As early as the 1830s, doctors had observed that treating patients with intravenous fluids could keep them alive long enough for the disease to run its course; by the 1920s, treating cholera victims with IV fluids became standard practice in hospitals. By that point, though, cholera had become a disease that was largely relegated to the developing world, where hospitals or clinics and trained medical professionals were scarce. Setting up an IV for patients and administering fluids was not a viable intervention during a cholera outbreak affecting hundreds of thousands of people in Bangladesh or Lagos. Crowded into growing cities, lacking both modern sanitation systems and access to IV equipment, millions of people — most of them small children — died of cholera over the first six decades of the 20th century.

The sheer magnitude of that loss was a global tragedy, but it was made even more tragic because a relatively simple treatment for severe dehydration existed, one that could be performed by nonmedical professionals outside the context of a hospital. Now known as oral rehydration therapy, or O.R.T., the treatment is almost maddeningly simple: give people lots of boiled water to drink, supplemented with sugar and salts. (Americans basically are employing O.R.T. when they consume Pedialyte to combat a stomach bug.) A few doctors in India, Iraq and the Philippines argued for the treatment in the 1950s and 1960s, but in part because it didn’t seem like “advanced” medicine, it remained a fringe idea for a frustratingly long time.

4. Gamification of Chinese consumer tech (Abridged version) – Lillian Li

Long-time readers of my newsletter know that I view the Chinese tech world from a set of starting conditions. These are the rules of the game that then affect the actions of the players. In China, these were having mobile as the default installation base, a rich heritage of free-to-play (F2P) developers and a large time-rich but cash-poor population who want to consume entertainment.

For Chinese tech, much derives from the fact that the installation base for technology is mobile versus PC. Being mobile-first means that the user is more attentive as an app is a more immersive experience than a browser. There’s also a rough cut off for the number of apps any sane person can have on their phone. A very general statistic notes that the average person has 40 apps installed on the phone. Out of that 40 apps, 89% of the time is split between 18 apps. We see similar metrics for Chinese users who, on average, open 26 apps a month. About 75% of their time is spent in the ecosystems of Tencent, Alibaba, Baidu, Bytedance and Kuaishou. There’s a natural limit to mobile time, and attention is directed towards the top apps.

This drives a sense of urgency for owning the user — mobile mental real estate is scarce, and every app is looking for more time and attention. Gamifying the user experience in e-commerce platforms or social networking platforms means that, first and foremost, the app can compete for a broader range of the user’s time. If a utility app is suddenly made entertaining, users will mentally switch viewing engagement from being a chore to leisure. App Annie shows the entertainment categories are by the largest after social and communication (which are also somewhat entertainment-related)…

…As Wei mentioned on the NFX podcast, consumers seem to have an infinite appetite for entertainment. In the always-connected mobile phone era, all forms of entertainment are starting to be fungible. In a previous era, different forms of entertainment were more segregated markets with natural structural moats. Those mainly don’t exist anymore. That means companies compete with the best qualities of any form of entertainment now, not just competitors’ strengths in their direct market.

This means that adding entertainment to a product brings it into competition with every other entertainment vice out there. Netflix’s true competitor is Roblox. If you’re in China, everyone’s true competitor is Tencent’s Honour of Kings, aka the mobile version of League of Legend. If you’re Alibaba, rather than try to face-off Cao Cao with faster delivery, why not do it with a cat?

As a product booster, gamification features open up new dimensions for an app, specifically retention, acquisition, monetisation and user segmentation…

…Games and gamification of apps are retention machines when done well; people check in on their progress and make sure their friends haven’t surpassed them. While they are there, they might also utilise other functions in the app too. Gamified features are often used to train users on certain usage behaviours (be it posting more content, using different features sets or inviting their friends), under the guise of points accumulation. This will also train the user to be more sticky to an offering once they grasp the tool’s full capabilities…

…User segmentation – How do you segment users into high capacity versus low capacity to spend? You get them to self-select by seeing who’s willing to trade time for coupons. In playing the games, the users reveal their preferences around time, capacity, and willingness to pay, allowing more accurate targeting. Mini-games and their real-world rewards in the form of coupons or red packets (cash subsidies) are shrewd price discrimination from the platforms. It allows them to sell the same item at different price points to diverse populations.

A tier-one city white-collar worker wouldn’t wait for a sale to get a reusable coffee cup at 50 RMB. Taobao can sell the same cup at 10 RMB to a tier-three city dweller after making the user jump the hoops to acquire the relevant coupons. It doesn’t all have to be price sensitively, Alipay’s tree planting or Meituan’s free lunches for kids appeals to people’s altruism. That also tells you about who is playing. There is utility in the entertainment with Chinese super-apps, just as there’s entertainment in the utility.

5. Inside Gucci and Roblox’s new virtual world – Maghan McDowell

First came the Gucci Garden Archetypes installation in the brand’s Florence palazzo, a physical recreation of 15 of Gucci’s most fantastical advertising campaign sets. Now comes another Garden, open to the world and time-zone agnostic. Behold, a fantastical virtual Gucci Garden to wander through, offering immersion in the everything-goes universe of creative director Alessandro Michele.

The Gucci Garden is unveiling on 17 May on Roblox, the gaming platform initially popular among pre-teens that is expanding into a prominent metaverse platform for all. Like the IRL version, the Gucci Garden on Roblox offers multiple themed rooms that pay homage to Gucci campaigns but also layers on features unrestrained by the laws of physics.

Visitors enter through a virtual lobby in which their avatars can view, try on and purchase digital Gucci items. Once inside the themed rooms, avatars are transformed into blank, genderless, humanoid-like mannequins that look unfamiliar to those who associate Roblox with rectangular, toylike figures. As people progress through the spaces, their avatars absorb visual elements of each. In the Tokyo Tribe-themed maze, colourful zig-zag lights might become a patterned sleeve. A pool room pays homage to the party scenes of Gucci Cruise 2020. At the centre is a garden room. In Florence, it’s capped by a ceiling; on Roblox, it’s open to the sky, surrounded by forest and seeds flowers on visitor avatars.

Roblox randomises the order in which people enter, so each avatar’s appearance is unique to them. Upon exiting, visitors can view their avatars’ canvas and the canvases of others and can take screenshots to share on social channels. The idea is that while everyone starts as the same blank canvas, the experience defines them, says Morgan Tucker, Roblox senior director of product for the social group. “This adds to a level of immersion that would match, if not exceed, what you see in the real world, and really pushes the limits of what the platform is capable of.”…

…The young are used to the metaverse. “Just like you wanted to catch the kids at the mall, it’s the same thing. You build that brand affinity, as they already inhabit the space,” says futurist Cathy Hackl, who advises luxury brands on the metaverse through her role as chief metaverse officer at Future Metaverse Labs. For example, while her first experience of a concert was in a real-life stadium, her son’s first gig was on Roblox. Sometimes, her children will ask for a new (digital) outfit to attend a Roblox birthday party. “Most of these kids aren’t on Instagram or other platforms — this is their social network,” she says.

6. Once hailed as unhackable, blockchains are now getting hacked – Mike Orcutt

Early last month [January 2019], the security team at Coinbase noticed something strange going on in Ethereum Classic, one of the cryptocurrencies people can buy and sell using Coinbase’s popular exchange platform. Its blockchain, the history of all its transactions, was under attack.

An attacker had somehow gained control of more than half of the network’s computing power and was using it to rewrite the transaction history. That made it possible to spend the same cryptocurrency more than once—known as “double spends.” The attacker was spotted pulling this off to the tune of $1.1 million. Coinbase claims that no currency was actually stolen from any of its accounts. But a second popular exchange, Gate.io, has admitted it wasn’t so lucky, losing around $200,000 to the attacker (who, strangely, returned half of it days later).

Just a year ago, this nightmare scenario was mostly theoretical. But the so-called 51% attack against Ethereum Classic was just the latest in a series of recent attacks on blockchains that have heightened the stakes for the nascent industry…

…Susceptibility to 51% attacks is inherent to most cryptocurrencies. That’s because most are based on blockchains that use proof of work as their protocol for verifying transactions. In this process, also known as mining, nodes spend vast amounts of computing power to prove themselves trustworthy enough to add information about new transactions to the database. A miner who somehow gains control of a majority of the network’s mining power can defraud other users by sending them payments and then creating an alternative version of the blockchain in which the payments never happened. This new version is called a fork. The attacker, who controls most of the mining power, can make the fork the authoritative version of the chain and proceed to spend the same cryptocurrency again.

For popular blockchains, attempting this sort of heist is likely to be extremely expensive. According to the website Crypto51, renting enough mining power to attack Bitcoin would currently cost more than $260,000 per hour. But it gets much cheaper quickly as you move down the list of the more than 1,500 cryptocurrencies out there. Slumping coin prices make it even less expensive, since they cause miners to turn off their machines, leaving networks with less protection.

Toward the middle of 2018, attackers began springing 51% attacks on a series of relatively small, lightly traded coins including Verge, Monacoin, and Bitcoin Gold, stealing an estimated $20 million in total. In the fall, hackers stole around $100,000 using a series of attacks on a currency called Vertcoin. The hit against Ethereum Classic, which netted more than $1 million, was the first against a top-20 currency.

David Vorick, cofounder of the blockchain-based file storage platform Sia, predicts that 51% attacks will continue to grow in frequency and severity, and that exchanges will take the brunt of the damage caused by double-spends. One thing driving this trend, he says, has been the rise of so-called hashrate marketplaces, which attackers can use to rent computing power for attacks. “Exchanges will ultimately need to be much more restrictive when selecting which cryptocurrencies to support,” Vorick wrote after the Ethereum Classic hack.

Aside from 51% attacks, there is whole new level of blockchain security weaknesses whose implications researchers are just beginning to explore: smart-contract bugs. Coincidentally, Ethereum Classic—specifically, the story behind its origin—is a good starting point for understanding them, too.

A smart contract is a computer program that runs on a blockchain network. It can be used to automate the movement of cryptocurrency according to prescribed rules and conditions. This has many potential uses, such as facilitating real legal contracts or complicated financial transactions. Another use—the case of interest here—is to create a voting mechanism by which all the investors in a venture capital fund can collectively decide how to allocate the money.

Just such a fund, called the Decentralized Autonomous Organization (DAO), was set up in 2016 using the blockchain system called Ethereum. Shortly thereafter, an attacker stole more than $60 million worth of cryptocurrency by exploiting an unforeseen flaw in a smart contract that governed the DAO. In essence, the flaw allowed the hacker to keep requesting money from accounts without the system registering that the money had already been withdrawn.

As the hack illustrated, a bug in a live smart contract can create a unique sort of emergency. In traditional software, a bug can be fixed with a patch. In the blockchain world, it’s not so simple. Because transactions on a blockchain cannot be undone, deploying a smart contract is a bit like launching a rocket, says Petar Tsankov, a research scientist at ETH Zurich and cofounder of a smart-contract security startup called ChainSecurity. “The software cannot make a mistake.”

There are fixes, of a sort. Though they can’t be patched, some contracts can be “upgraded” by deploying additional smart contracts to interact with them. Developers can also build centralized kill switches into a network to stop all activity once a hack is detected. But for users whose money has already been stolen, it will be too late.

The only way to retrieve the money is, effectively, to rewrite history—to go back to the point on the blockchain before the attack happened, create a fork to a new blockchain, and have everyone on the network agree to use that one instead. That’s what Ethereum’s developers chose to do. Most, but not all, of the community switched to the new chain, which we now know as Ethereum. A smaller group of holdouts stuck with the original chain, which became Ethereum Classic.

7. The Four Desires Driving All Human Behavior: Bertrand Russell’s Magnificent Nobel Prize Acceptance Speech – Maria Popova

“All human activity is prompted by desire. There is a wholly fallacious theory advanced by some earnest moralists to the effect that it is possible to resist desire in the interests of duty and moral principle. I say this is fallacious, not because no man ever acts from a sense of duty, but because duty has no hold on him unless he desires to be dutiful. If you wish to know what men will do, you must know not only, or principally, their material circumstances, but rather the whole system of their desires with their relative strengths.”…

…”Acquisitiveness — the wish to possess as much as possible of goods, or the title to goods — is a motive which, I suppose, has its origin in a combination of fear with the desire for necessaries. I once befriended two little girls from Estonia, who had narrowly escaped death from starvation in a famine. They lived in my family, and of course had plenty to eat. But they spent all their leisure visiting neighbouring farms and stealing potatoes, which they hoarded. Rockefeller, who in his infancy had experienced great poverty, spent his adult life in a similar manner.”…

…”The world would be a happier place than it is if acquisitiveness were always stronger than rivalry. But in fact, a great many men will cheerfully face impoverishment if they can thereby secure complete ruin for their rivals. Hence the present level of taxation.”…

…”Our mental make-up is suited to a life of very severe physical labor. I used, when I was younger, to take my holidays walking. I would cover twenty-five miles a day, and when the evening came I had no need of anything to keep me from boredom, since the delight of sitting amply sufficed. But modern life cannot be conducted on these physically strenuous principles. A great deal of work is sedentary, and most manual work exercises only a few specialized muscles. When crowds assemble in Trafalgar Square to cheer to the echo an announcement that the government has decided to have them killed, they would not do so if they had all walked twenty-five miles that day. This cure for bellicosity is, however, impracticable, and if the human race is to survive — a thing which is, perhaps, undesirable — other means must be found for securing an innocent outlet for the unused physical energy that produces love of excitement… I have never heard of a war that proceeded from dance halls.”…

…”Civilized life has grown altogether too tame, and, if it is to be stable, it must provide harmless outlets for the impulses which our remote ancestors satisfied in hunting… I think every big town should contain artificial waterfalls that people could descend in very fragile canoes, and they should contain bathing pools full of mechanical sharks. Any person found advocating a preventive war should be condemned to two hours a day with these ingenious monsters. More seriously, pains should be taken to provide constructive outlets for the love of excitement. Nothing in the world is more exciting than a moment of sudden discovery or invention, and many more people are capable of experiencing such moments than is sometimes thought.”

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

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

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

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

Here are the articles for the week ending 23 May 2021:

1. Letter #34: On wanting – Ali Montag

In 1972, banners covered the West Texas town of Odessa, black and white signs painted MOJO WINS. Neighbors held each other and cried. Fathers shook hands and slapped each other’s backs, grins spread wide. That year, their boys had done it: The Permian High School Panthers were state champions.

“We were hoarse from screaming and yelling. We didn’t want to leave the field,” quarterback Jerry Hix remembered years later, long after his high school football career had ended. “Nothing can compare. I miss it.”

It was a moment of indescribable pride for boys who spent the better part of their young lives cracking ribs, ripping tendons, and puking under the Texas sun, working toward a single goal: Excellence at the game of football. It was a moment of pride for the people of Odessa, the few thousand ranchers and oilmen and beauty clerks who scratched out lives in the arid desert, watching and praying over their team.

It was also a moment from which many of those boys would never recover.

“My life’s never been the same since,” said Joe Bob Bizzell, a player who flamed out of college football and retreated to the dirt roads of Odessa. A decade later, he found himself still there, repairing pump jacks on an Amoco oil field.

“You live in a fairy tale for that one year of your life,” said a different player’s wife. “You’re worshipped, and that year is over and you’re like anyone else. We all feel our husbands have been unhappier with everything they got out of it.”

Players fell into alcohol abuse and lackluster home lives. Permian High’s athletic trainer called winning a Texas high school football championship the “kiss of death” for teenage boys.

“They’re popular. They’re in very hot demand, like a hot rock group. No matter what they do, it’s a hit. Everything they do is right,” he said. “And they just can’t find that again. What other job can they find that has that glamour? What’s the substitute? Find the substitute for it. The only consequence of it is a mentally crippling disease for the rest of your life.”

Why am I recounting Pulitzer Prize winner H.G. Bissinger’s reporting in Friday Night Lights? First, because it is a wonderful book. Second, because as I’ve been re-reading it this week, the story feels uniquely relevant.

Bissinger’s nonfiction account of Odessa and its Permian Panthers isn’t just a book about winning football games. It’s a book about the lingering cost of life lived on a pedestal.

Flipping through Twitter last week, this video, “A day in the life of a New York fashion student,” popped into my feed. Watching, it wasn’t memories of NYC, or outfit envy, or nostalgia for my own youth that I first thought of (that came later)—but the boys of Permian High.

2. Daniel Kahneman: ‘Clearly AI is going to win. How people are going to adjust is a fascinating problem’ – Tim Adams

[Admas] One of the key problems seems to have been the widespread inability to grasp the basic idea of exponential growth. Does that surprise you?

[Kahneman] Exponential phenomena are almost impossible for us to grasp. We are very experienced in a more or less linear world. And if things are accelerating, they’re usually accelerating within reason. Exponential change [as with the spread of the virus] is really something else. We’re not equipped for it. It takes a long time to educate intuition…

…[Adams] Some of the examples you describe – the extraordinary variance seen in sentencing for the same crimes (even influenced by such external matters as the weather, or the weekend football results), say, or the massive discrepancies in insurance underwriting or medical diagnosis or job interviews based on the same baseline information – are shocking. The driver of that noise often seems to lie with the protected status of the “experts” doing the choosing. No judge, I imagine, wants to acknowledge that an algorithm would be fairer at delivering justice?

[Kahneman] The judicial system, I think, is special in a way, because it’s some “wise” person who is deciding. You have a lot of noise in medicine, but in medicine, there is an objective criterion of truth…

...[Adams] I was struck watching the American elections by just how often politicians of both sides appealed to God for guidance or help. You don’t talk about religion in the book, but does supernatural faith add to noise?

[Kahneman] I think there is less difference between religion and other belief systems than we think. We all like to believe we’re in direct contact with truth. I will say that in some respects my belief in science is not very different from the belief other people have in religion. I mean, I believe in climate change, but I have no idea about it really. What I believe in is the institutions and methods of people who tell me there is climate change. We shouldn’t think that because we are not religious, that makes us so much cleverer than religious people. The arrogance of scientists is something I think about a lot…

…[Adams] Do you feel that there are wider dangers in using data and AI to augment or replace human judgment?

[Kahneman] There are going to be massive consequences of that change that are already beginning to happen. Some medical specialties are clearly in danger of being replaced, certainly in terms of diagnosis. And there are rather frightening scenarios when you’re talking about leadership. Once it’s demonstrably true that you can have an AI that has far better business judgment, say, what will that do to human leadership?

3. A new book aims to blow up assumptions about the best founding teams – Connie Loizos

There’s a lot of how-to guidance out there when it comes to starting a company, and much of it has reinforced certain beliefs, including that solo founders don’t get very far on their own, that the most successful founders attend a small circle of top schools and that the best companies are created by people who launched them to solve a personal problem into which they had a particular insight.

Ali Tamaseb — who studied biomedical engineering at Imperial College London, attended business school at Stanford and founded a wearable tech startup before joining the venture firm DCVC as an investor in 2018 — says that lot of that guidance is, well, misguided. Tamaseb says he knows this because over the past four years, to improve his own decision-making, he amassed more than 30,000 data points about so-called “super founders,” from their age when their breakout company was founded to how many competitors they faced from the outset; in doing so, he says, he wound up discovering that much of what is espoused in startup circles is off the mark…

…TC: You also found that solo founders aren’t doomed to run smaller companies, despite some earlier thinking by Y Combinator’s Paul Graham that you need at least two co-founders to do something big.

AT: Right, 20% of the founders in both groups — the unicorn and non-unicorn group — were solo founders, so VCs are funding solo founders and they are building billion-dollar companies. Basically, one out of every five unicorn companies has a solo founder. So I think that’s another narrative that gets retold, including on Twitter, but that doesn’t match reality. Flexport, for example, has a solo founder [in Ryan Petersen]. So does CarGurus, which was founded by Langley Steinert, who, by the way, first co-founded TripAdvisor [and more recently founded ApartmentAdvisor].

TC: Your book also asserts that there are plenty of founders of billion-dollar companies that didn’t attend elite American universities.

AT: There are schools that founders attended more than others — Stanford, MIT, Wharton and Harvard — but as many of these founders attended schools that aren’t even at the top 100 [ranked U.S. schools] compared to those who went into the top 10. It’s a barbell distribution. Around 36% went to the top 10 schools, the same percentage went to schools not in the top 100, and there’s another 30% or so in the middle.

TC: Two other observations in the book that are interesting are that half the founding CEOs you researched were non-technical, and only 30% had domain expertise in the industry they were disrupting. The latter may surprise readers particularly.

AT: Yes, 30% of founders in consumer tech and 40% in enterprise tech did not come from the same domain [that their company now operates in]. And I see the same thing in startups that are just now getting funded. What it tells you is that domain expertise is not necessarily correlated to success. Take Nat Turner of Flatiron Health [a cancer-focused startup that sold to Roche Group in 2018]. These guys were serial entrepreneurs and they had a bunch of successes before, and they jumped from one industry to another, starting with a pizza delivery company they started in college, where they learned about the restaurant industry and deliveries and logistics. They also sold an ad tech company to Google. Then they go and start this company in the cancer oncology IP and data space, where they didn’t know anything, but they learned as much as anybody after spending two years going and talking with every oncologist they could find in New York to understand the space. So maybe founders apply their tech background to different industries or they apply soft skills like resources and connections to learn about a specific industry rather than coming from that industry.

4. The Unusual Signs of a Billion Dollar Company, with Elad Gil – James Currier

• It’s a really tough question early on because if something was very obvious that it’s going to be a massive business and market, everybody would already be doing it and there’d be no opportunity for a start-up.
• Definitionally, a start-up has to be doing something a little bit not obvious. It’s hard to estimate TAM. Often when people estimate it, they use a BS number where they say: “Commerce is $20 trillion, and if we capture just one sliver…”
• It’s really hard to actually know what the true size of a market is until you’re far enough along that you’re seeing customer adoption and you kind of extrapolate from there.
• You can also underestimate some of these things. So, for example, when I invested in Stripe, which was at the series A and I think they were only eight or ten people, I thought: “Oh my God, it’d be an amazing success if they were worth a few billion dollars.” Now I think it’s going to be a multi-hundred billion-dollar company over time. 
• I extrapolated the future growth of the internet, but not enough…
  
  
• …Most early-stage investors would say the thing that they care about most is the founders. And obviously, founders are incredibly important to a company. They really drive the success of it. I started two companies myself.
• But I think the market is even more important because I’ve seen great founders repeatedly get crushed by a terrible market. And I’ve actually seen some pretty mediocre people do incredibly well if there’s very strong product-market fit.
• Sometimes the company almost runs on its own, irrespective of what the founders do, as long as they have enough of an advantage or there’s a network effect that will sustain them.
• So ultimately my focus is on product market.
• Technology has become such a big force in society and all the biggest companies by market cap are now technology companies. If you look at every single metric, technology markets are at least 10X, if not many tens of times bigger than they were just 10 years ago. If you look at internet usage, time spent online, the number of people with access to the internet, the penetration of e-commerce, et cetera…
  
  
• …Companies that innovate early to get to a second product line, tend to do that often and build the muscle.
• Companies that innovate late actually never innovate again. If you take five, six, seven years to launch your second area, it usually means you’re not going to ever come up with anything else.
• Caution: Very innovative founders sometimes innovate in places where they really shouldn’t, because it’s both kind of a waste of time, but also, the things that work actually work pretty well. So, it’s this balance…
  

• …The place where people screw it up on the way to $B companies is a lot of founders, when they leave the company as CEO, they’ll promote the person who is the perfect complement to them to become the CEO.
• So, that’d be like Tim Cook at Apple. You really appreciate that operator skillset.
• In reality, maybe what the founders should be doing is hiring somebody more like them to become the next CEO.
• You kind of need that person who’s hungry and paranoid and scared, and willing to try new things and destroy their own business. That’s not the operator. The operator is the stabilizer, their whole career has been stabilizing.
• So, it’s really interesting to see this pattern where CEO transitions keep going bad because they keep hiring that non-entrepreneurial person or that very operation-centered person who’s the perfect compliment, but again, they need somebody who’s more like them, rather than somebody who’s different from them.
• Stabilizers often come in and they invoke conventional thinking, and often, these first-time founders are successful because they’ve broken with conventional thinking.

5. The hybrid work paradox – Satya Nadella

As I meet with leaders across industries, it’s clear there is no single standard or blueprint for hybrid work. Every organization’s approach will need to be different to meet the unique needs of their people. According to our research, the vast majority of employees say they want more flexible remote work options, but at the same time also say they want more in-person collaboration, post-pandemic. This is the hybrid work paradox.

We see the same anomalies when it comes to in-person attendance at our own worksites across the world as regions begin to recover from the pandemic. In China, for example, 81 percent of our employees are going back to the worksite three-plus days per week, compared with pre-pandemic attendance, while in Australia, in-person attendance is just 19 percent of what it was pre-pandemic.

Hybrid work represents the biggest shift to how we work in our generation. And it will require a new operating model, spanning people, places, and processes. Today, we published a playbook sharing some of what we’ve learned to date, including data, research, and best practices designed to help organizations navigate these evolving work norms…

…On social capital, every business must be world class at all forms of synchronous and asynchronous communications, to sustain culture across the organization. In fact, at Microsoft, meeting recordings are the fastest-growing content type. Employees now expect all meeting information — whether that’s recordings, transcripts, or highlights — to be available on demand, and on double speed, at a time that works for them.

We must also maintain everyday connections between employees, as well as between employees, their managers, and the company at large. It’s why with our employee experience cloud Microsoft Viva, for example, we’re bringing together one-to-one and one-to-many communications to keep everyone engaged and informed and maintain that connection between employees and the company and its mission…

…As we think about the design of places themselves, our aim is to maintain consistent person, reference, and task spaces for all employees, whether they are on-site or remote. No matter where people are working, they should have a common view of meeting participants and be able to connect with them. They should always have access to the same shared information. And they should be able to see what everyone in the meeting is collaborating on, whether that is a whiteboard or a document.

Creating equitable, inclusive experiences starts with designing for people not in the room. For example, in large meeting rooms in our campus, we are using Microsoft Teams Rooms with high-quality audio and video to ensure everyone can be seen, be heard, and participate as if they were there in person. We are even integrating social cues through emojis and reactions…

…Every business process will be impacted by the move to hybrid, and every business function will need to transform. From product development and manufacturing, to marketing, sales, customer service, and facilities, HR, and IT, every business process will need to be adjusted. One area that is of paramount importance is security.

The threat landscape has never been more complex or challenging, and security has never been more critical. We intercepted and thwarted a record 30 billion email threats last year and are currently tracking 40-plus active nation-state actors and over 140 threat groups.

As corporate networks are suddenly without firm borders, this is also changing our approach to security. We believe that a Zero Trust architecture is more important than ever as we shift to hybrid work.

6. Twitter thread on the importance of knowing when you’re a “pro” and when you’re an “amateur” – Brian Portnoy

I believe that Charley Ellis’ thesis in “Winning the Loser’s Game” is foundational for understanding investing and life generally: Win by not losing. However, there is an important piece to it that is mostly ignored. A thread… 1/x

If you’re reading this, you likely already know that Ellis uses a tennis analogy to make his point: pro athletes win by hitting harder shots while amateurs win by keeping the ball in play and allowing their opponent to err.  2/x

Same with investing: Most should just try to stay in the game than reach for the next overhead slam. Don’t search for the next Amazon, avoid the next Enron. 3/x..

…So what about the “ignored” part? I think it’s deciding whether to consider yourself a “pro” or an “amateur” (or somewhere along a spectrum) in a particular domain. 7/x

So how to self-assess? It’s really important (!) because much weight of the “less wrong” mental model actually rests on this necessarily prior decision. And has obvious connections to overconfidence, Dunning-Krueger, etc. 8/x

Maybe the easiest thing, sort of, is brute force humility — assume you know very little about everything. That wouldn’t be a bad tilt for some, but it is somewhat spirit-destroying and generally a terrible equilibrium for humanity, as it renders true expertise worthless. 9/x

Okay, so no forced humility. And believing you are a “pro” at many things also seems imprudent. Which leaves us, predictably and unsatisfyingly, somewhere in the middle, where we have to use different forms of judgment to asses pro vs. amateur status domain by domain. 10/x

7. How much Bitcoin comes from dirty coal? A flooded mine in China just spotlighted the issue – Shawn Tully

One of the great Bitcoin unknowns has long been the amounts being produced, or “mined,” in what’s believed to be the top locale for mining the signature cryptocurrency: China’s remote Xinjiang region. We got the answer when an immense coal mine in Xinjiang flooded and shut down over the weekend of April 17–18.

The blackout halted no less than one-third of all of Bitcoin’s global computing power. “We’d seen estimates that high, but this shutdown confirms them,” says Alex de Vries, an economist who runs the website Digiconomist, which tracks Bitcoin’s energy consumption. “We also learned that the area in Xinjiang where all that mining happens is much smaller than previously believed. It underscores China’s dominance in Bitcoin mining, and that dominance raises big security concerns.”

The Xinjiang accident highlights that Bitcoin is a creature of fossil fuels—principally coal, the dirtiest of them all…

…On April 11, the first news reports emerged that the Xinjiang mine had flooded, trapping 21 workers underground. The miners were rescued, but over the following weekend, authorities reportedly halted production while conducting a safety check, stopping shipments to power plants and causing a blackout. By de Vries’s estimates, the “hash rate,” the pace at which miners run algorithms to compete for fresh releases of Bitcoin, plummeted around 35%. Some in the Bitcoin community blamed the upheaval for hammering the price of the cryptocurrency by 14%, from a record $64,000 on Friday, April 16, to $55,000 on Sunday the 18th.

It’s by no means certain that reports of the accident pounded the wildly volatile coin. But the loss of computing power did trigger a sharp drop in the network’s capacity for handling transactions. Over the weekend, the cost of making a payment with the cryptocurrency or receiving a transfer of Bitcoin jumped from around $16 to $52, according to de Vries.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, we currently have a vested interest in Amazon, Apple, and 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 16 May 2021:

1. Play Your Own Game – Morgan Housel

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

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

But people play wildly different games.

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

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

What you want might not be what I want.

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

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

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

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

But it’s rarely parsed that way.

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

VCs have different priorities than public market investors.

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

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

It’s fine.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. The Butterfly Effect – John Markoff

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. Who Disrupts the Disrupters? – Packy McCormick

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do not just do something, sit there.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5. The Spectrum of Optimism and Pessimism – Morgan Housel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 April 2021:

1. How People Get Rich Now – Paul Graham

In 1982, there were two dominant sources of new wealth: oil and real estate. Of the 40 new fortunes in 1982, at least 24 were due primarily to oil or real estate. Now only a small number are: of the 73 new fortunes in 2020, 4 were due to real estate and only 2 to oil.

By 2020 the biggest source of new wealth was what are sometimes called “tech” companies. Of the 73 new fortunes, about 30 derive from such companies. These are particularly common among the richest of the rich: 8 of the top 10 fortunes in 2020 were new fortunes of this type…

…The tech companies behind the top 100 fortunes also form a well-differentiated group in the sense that they’re all companies that venture capitalists would readily invest in, and the others mostly not. And there’s a reason why: these are mostly companies that win by having better technology, rather than just a CEO who’s really driven and good at making deals.

To that extent, the rise of the tech companies represents a qualitative change. The oil and real estate magnates of the 1982 Forbes 400 didn’t win by making better technology. They won by being really driven and good at making deals. And indeed, that way of getting rich is so old that it predates the Industrial Revolution. The courtiers who got rich in the (nominal) service of European royal houses in the 16th and 17th centuries were also, as a rule, really driven and good at making deals…

…Why are people starting so many more new companies than they used to, and why are they getting so rich from it? The answer to the first question, curiously enough, is that it’s misphrased. We shouldn’t be asking why people are starting companies, but why they’re starting companies again.

In 1892, the New York Herald Tribune compiled a list of all the millionaires in America. They found 4047 of them. How many had inherited their wealth then? Only about 20% — less than the proportion of heirs today. And when you investigate the sources of the new fortunes, 1892 looks even more like today. Hugh Rockoff found that “many of the richest … gained their initial edge from the new technology of mass production.”

So it’s not 2020 that’s the anomaly here, but 1982. The real question is why so few people had gotten rich from starting companies in 1982. And the answer is that even as the Herald Tribune’s list was being compiled, a wave of consolidation was sweeping through the American economy. In the late 19th and early 20th centuries, financiers like J. P. Morgan combined thousands of smaller companies into a few hundred giant ones with commanding economies of scale. By the end of World War II, as Michael Lind writes, “the major sectors of the economy were either organized as government-backed cartels or dominated by a few oligopolistic corporations.”

In 1960, most of the people who start startups today would have gone to work for one of them. You could get rich from starting your own company in 1890 and in 2020, but in 1960 it was not really a viable option. You couldn’t break through the oligopolies to get at the markets. So the prestigious route in 1960 was not to start your own company, but to work your way up the corporate ladder at an existing one.

Making everyone a corporate employee decreased economic inequality (and every other kind of variation), but if your model of normal is the mid 20th century, you have a very misleading model in that respect. J. P. Morgan’s economy turned out to be just a phase, and starting in the 1970s, it began to break up.

Why did it break up? Partly senescence. The big companies that seemed models of scale and efficiency in 1930 had by 1970 become slack and bloated. By 1970 the rigid structure of the economy was full of cosy nests that various groups had built to insulate themselves from market forces. During the Carter administration the federal government realized something was amiss and began, in a process they called “deregulation,” to roll back the policies that propped up the oligopolies.

But it wasn’t just decay from within that broke up J. P. Morgan’s economy. There was also pressure from without, in the form of new technology, and particularly microelectronics. The best way to envision what happened is to imagine a pond with a crust of ice on top. Initially the only way from the bottom to the surface is around the edges. But as the ice crust weakens, you start to be able to punch right through the middle.

The edges of the pond were pure tech: companies that actually described themselves as being in the electronics or software business. When you used the word “startup” in 1990, that was what you meant. But now startups are punching right through the middle of the ice crust and displacing incumbents like retailers and TV networks and car companies…

…But there’s also a third factor at work: the companies themselves are more valuable, because newly founded companies grow faster than they used to. Technology hasn’t just made it cheaper to build and distribute things, but faster too.

This trend has been running for a long time. IBM, founded in 1896, took 45 years to reach a billion 2020 dollars in revenue. Hewlett-Packard, founded in 1939, took 25 years. Microsoft, founded in 1975, took 13 years. Now the norm for fast-growing companies is 7 or 8 years.

2. Twitter thread on the corporate culture in Amazon and Facebook – Dan Rose

What defines a great company culture? I worked for two iconic companies and founders with nearly polar opposite cultures. Amazon was heads-down, secretive, forthright. Facebook was open, transparent, collaborative. Here’s what I learned about culture working for Bezos and Zuck:

Culture implicitly sets expectations for behavior. Strong cultures are well-defined with sharp edges, and well-understood by everyone in the organization top to bottom. Strong founders with unapologetic personalities set the culture early and maintain it as the company scales.

When I joined Amzn in 1999, we had top-secret teams working on new products like Auctions, Toys and Electronics. Before a product launched, the only people in the know were those who needed to know. Everyone else was told to keep their heads down and focus on their own work…

…There’s nothing wrong with a heads-down culture where employees are told to focus on their own work. It provides guardrails, avoids distractions, sets a serious tone. And yet, there is a certain distrust in telling employees to mind their own business. The knife cuts both ways.

When I joined FB in 2006, I was shocked at how much Zuck shared with the company. I advised him to share less to avoid leaks. His response: “I’m building a company that I would want to work for if I hadn’t started FB. And I would want to work at a place that shares openly.”

FB’s open culture mapped to Mark’s personality and a generational shift in employee expectations. It also mapped to Facebook’s products which were built on sharing. Open cultures assume employees are less likely to leak if they are trusted and empowered with confidential info.

Transparency allows for ideas to come from anywhere in the organization. Teams at FB prolifically collaborate, share feedback, communicate. But at its worst, this type of culture can devolve into entitlement, insubordination, ceaseless complaining. The knife cuts both ways.

3. Artificial intelligence has advanced so much, it wrote this article – Jurica Dujmovic & GPT-3

I did not write this article.

In fact, it wasn’t written by any person. Every sentence you see after this introduction is the work of OpenAI’s GPT-3, a powerful language-prediction model capable of composing sequences of coherent text. The only thing I did was provide it with topics to write about. I did not even fix its grammar or spelling.

According to OpenAI, more than 300 applications are using GPT-3, which is part of a field called natural language processing. An average of 4.5 billion words are written per day. Some say the quality of GPT-3’s text is as good as that written by humans.

What follows is GPT-3’s response to topics in general investing.

MarketWatch: “How to invest in cryptocurrencies by GPT-3.”

GPT-3: The growing popularity of cryptocurrency means there are hundreds of opportunities to choose from, but no matter how tempting it is to buy a partially inflated coin or invest in a minor one with big expectations, only a few cryptocurrencies really offer good investment opportunities.

The market is incredibly volatile and risky so it’s essential to read up on the fundamental value and technology of the crypto companies you’re going to invest in. The market capitalization of a cryptocurrency is no indication of its worth and there are many coins which are technically worth more than their price would indicate. You can try trading, but if you don’t wish to risk losing your money you can always treat it like betting on horses.

Here are some good cryptocurrencies if you want to invest: bitcoin, ethereum, monero, and litecoin…

…MarketWatch: “Is gold a good investment?”

GPT-3: I’m often asked if gold is a good investment. I almost always respond that it’s a terrible investment. I want gold to be a good investment. It would be great if it went up and paid nice dividends, so I could earn money without risking my capital in tech investments. But this belief of mine clashes with a widespread popular belief that gold is the ultimate safe investment, holding steady or going up over time while everything else falls apart.

Theoretical models have indicated that gold is not a stable investment. Theories of financial economics demonstrate that the price of gold should be positively related to risk-free interest rates. This is because an investor who expects low rates will purchase gold as protection in case bad economic conditions arise in the future.

4. A Few Short Stories – Morgan Housel

When Barack Obama discussed running for president in 2005, his friend George Haywood – an accomplished investor – gave him a warning: the housing market was about to collapse, and would take the economy down with it.

George told Obama how mortgage-backed securities worked, how they were being rated all wrong, how much risk was piling up, and how inevitable its collapse was. And it wasn’t just talk: George was short the mortgage market.

Home prices kept rising for two years. By 2007, when cracks began showing, Obama checked in with George. Surely his bet was now paying off?

Obama wrote in his memoir:

George told me that he had been forced to abandon his short position after taking heavy losses.

“I just don’t have enough cash to stay with the bet,” he said calmly enough, adding, “Apparently I’ve underestimated how willing people are to maintain a charade.”

Irrational trends rarely follow rational timelines. Unsustainable things can last longer than you think…

…Apollo 11 was the first time in history humans visited another celestial body.

You’d think that would be an overwhelming experience – literally the coolest thing any human had ever done. But as the spacecraft hovered over the moon, Michael Collins turned to Neil Armstrong and Buzz Aldrin and said:

It’s amazing how quickly you adapt. It doesn’t seem weird at all to me to look out there and see the moon going by, you know?

Three months later, after Al Bean walked on the moon during Apollo 12, he turned to astronaut Pete Conrad and said “It’s kind of like the song: Is that all there is?” Conrad was relieved, because he secretly felt the same, describing his moonwalk as spectacular but not momentous.

Most mental upside comes from the thrill of anticipation – actual experiences tend to fall flat, and your mind quickly moves on to anticipating the next event. That’s how dopamine works.

If walking on the moon left astronauts underwhelmed, what does it say about our own earthly goals and expectations?

5. Shopify: A StarCraft Inspired Business Strategy – Mike (Nongaap Investing)

For those that not familiar with the races in StarCraft, think of Zerg as the “swarm” race that is collectively stronger by being part of a group. It’s easy to defeat an individual Zerg unit but you’ll be overwhelmed by a swarm. That’s how most Zerg players win the game.

Zerg is an amalgamation that lives within an ecosystem called the “creep” (think of it as a living carpet that slowly expands across the map) which gives Zerg units enhanced abilities and players visibility into oncoming threats when enemies step “onto the creep”. Zerg thrives on this living, evolving “creep”…

…The Zerg race gets stronger as the game progresses and as their “creep” spreads across the game’s map. A large coverage of “creep” on the map makes it possible to add more facilities (most facilities can only build on “creep”), access more resources, and deploy “swarms” (units only spawn on “creep”) to attack the enemy…

…Shopify has turned independent e-commerce sites into an online retail swarm capable of taking on much bigger players. The Shopify ecosystem makes it very easy for entrepreneurs to “spawn” sites and gives them the tools to be nimble and competitive online.

Where most see “One Platform, Every Channel, Any Device”, I see Shopify “Creep” that’s spreading across the commerce map and getting exponentially stronger as it expands.

One thing about Zerg gameplay that I haven’t mentioned is many non-Zerg StarCraft players get frustrated in long games because Zerg is extremely difficult to beat in “late game”. This means once a Zerg player has established their macro economy and upgrades, they can pretty much win any “read and respond” situations as long as they build the appropriate counters-measures in a timely fashion.

Consequently, in order to win, you have to beat Zerg early in the game or you will likely lose a long game of attrition all else being equal.

In my opinion, Shopify is well past the “early game” stage of online commerce so it will be interesting to see how things play out for Shopify long-term.

Interestingly, in November 2018 someone on Twitter predicted that Amazon would acquire Shopify in 2019. Tobi Lütke responded with the most “late game Zerg” response ever:

“I’d rather buy @amazon in 2029”

6. Kati Kariko Helped Shield the World From the Coronavirus – Gina Kolata

For her entire career, Dr. Kariko has focused on messenger RNA, or mRNA — the genetic script that carries DNA instructions to each cell’s protein-making machinery. She was convinced mRNA could be used to instruct cells to make their own medicines, including vaccines.

But for many years her career at the University of Pennsylvania was fragile. She migrated from lab to lab, relying on one senior scientist after another to take her in. She never made more than $60,000 a year.

By all accounts intense and single-minded, Dr. Kariko lives for “the bench” — the spot in the lab where she works. She cares little for fame. “The bench is there, the science is good,” she shrugged in a recent interview. “Who cares?”

Dr. Anthony Fauci, director of the National Institutes of Allergy and infectious Diseases, knows Dr. Kariko’s work. “She was, in a positive sense, kind of obsessed with the concept of messenger RNA,” he said.

Dr. Kariko’s struggles to stay afloat in academia have a familiar ring to scientists. She needed grants to pursue ideas that seemed wild and fanciful. She did not get them, even as more mundane research was rewarded.

“When your idea is against the conventional wisdom that makes sense to the star chamber, it is very hard to break out,” said Dr. David Langer, a neurosurgeon who has worked with Dr. Kariko.

Dr. Kariko’s ideas about mRNA were definitely unorthodox. Increasingly, they also seem to have been prescient.

“It’s going to be transforming,” Dr. Fauci said of mRNA research. “It is already transforming for Covid-19, but also for other vaccines. H.I.V. — people in the field are already excited. Influenza, malaria.”

7. Amazon 2020 Shareholder Letter – Jeff Bezos

If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.

Remember that stock prices are not about the past. They are a prediction of future cash flows discounted back to the present. The stock market anticipates…

…The fact is, the large team of thousands of people who lead operations at Amazon have always cared deeply for our hourly employees, and we’re proud of the work environment we’ve created. We’re also proud of the fact that Amazon is a company that does more than just create jobs for computer scientists and people with advanced degrees. We create jobs for people who never got that advantage.

Despite what we’ve accomplished, it’s clear to me that we need a better vision for our employees’ success. We have always wanted to be Earth’s Most Customer-Centric Company. We won’t change that. It’s what got us here. But I am committing us to an addition. We are going to be Earth’s Best Employer and Earth’s Safest Place to Work.

In my upcoming role as Executive Chair, I’m going to focus on new initiatives. I’m an inventor. It’s what I enjoy the most and what I do best. It’s where I create the most value. I’m excited to work alongside the large team of passionate people we have in Ops and help invent in this arena of Earth’s Best Employer and Earth’s Safest Place to Work. On the details, we at Amazon are always flexible, but on matters of vision we are stubborn and relentless. We have never failed when we set our minds to something, and we’re not going to fail at this either…

…This is my last annual shareholder letter as the CEO of Amazon, and I have one last thing of utmost importance I feel compelled to teach. I hope all Amazonians take it to heart.

Here is a passage from Richard Dawkins’ (extraordinary) book The Blind Watchmaker. It’s about a basic fact of biology.

“Staving off death is a thing that you have to work at. Left to itself – and that is what it is when it dies – the body tends to revert to a state of equilibrium with its environment. If you measure some quantity such as the temperature, the acidity, the water content or the electrical potential in a living body, you will typically find that it is markedly different from the corresponding measure in the surroundings. Our bodies, for instance, are usually hotter than our surroundings, and in cold climates they have to work hard to maintain the differential.

When we die the work stops, the temperature differential starts to disappear, and we end up the same temperature as our surroundings. Not all animals work so hard to avoid coming into equilibrium with their surrounding temperature, but all animals do some comparable work. For instance, in a dry country, animals and plants work to maintain the fluid content of their cells, work against a natural tendency for water to flow from them into the dry outside world. If they fail they die. More generally, if living things didn’t work actively to prevent it, they would eventually merge into their surroundings, and cease to exist as autonomous beings. That is what happens when they die.”

While the passage is not intended as a metaphor, it’s nevertheless a fantastic one, and very relevant to Amazon. I would argue that it’s relevant to all companies and all institutions and to each of our individual lives too. In what ways does the world pull at you in an attempt to make you normal? How much work does it take to maintain your distinctiveness? To keep alive the thing or things that make you special?

I know a happily married couple who have a running joke in their relationship. Not infrequently, the husband looks at the wife with faux distress and says to her, “Can’t you just be normal?” They both smile and laugh, and of course the deep truth is that her distinctiveness is something he loves about her. But, at the same time, it’s also true that things would often be easier – take less energy – if we were a little more normal.

This phenomenon happens at all scale levels. Democracies are not normal. Tyranny is the historical norm. If we stopped doing all of the continuous hard work that is needed to maintain our distinctiveness in that regard, we would quickly come into equilibrium with tyranny.

We all know that distinctiveness – originality – is valuable. We are all taught to “be yourself.” What I’m really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness. The world wants you to be typical – in a thousand ways, it pulls at you. Don’t let it happen.

You have to pay a price for your distinctiveness, and it’s worth it. The fairy tale version of “be yourself ” is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading. Being yourself is worth it, but don’t expect it to be easy or free. You’ll have to put energy into it continuously.

The world will always try to make Amazon more typical – to bring us into equilibrium with our environment. It will take continuous effort, but we can and must be better than that.

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

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

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

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

Here are the articles for the week ending 11 April 2021:

1. Twitter thread on the importance of learning how to sell your product – Yuri Sagalov

It’s been almost 10 years since one of my most embarrassing fundraising moments as a founder. A moment so embarrassing that I couldn’t talk about it for years. It taught me the difference between raising a Seed round and a Series A, as well as some well needed humility.

In 2010, our seed raise was a breeze. We were young, arrogant, and deeply technical — a recipe for an oversubscribed round in 2010. We confidently handwaved away questions like “how will you get customers?” and spent most of our time building product.

In 2011 we started getting approached by Sand Hill funds to talk about a potential Series A, in the way that Sand Hill funds approach startups: They’re excited, they’re ready to fund, but actually they just want to learn more. Suddenly, we found ourselves fundraising again.

We were building an enterprise product but still didn’t really have any paying customers (we had some free users). This time around my handwaving didn’t work as well. Some investors politely nodded and then passed, but one AAA Sand Hill partner meeting went particularly poorly…

…We had users, and we even had some users who loved the product. But, ultimately, we were building a B2B/Enterprise product, and in 2010/2011 I knew nothing about sales and go to market. I made the naive mistake of believing that if we build it, they will come.

The partner and I sparred back and forth for a few minutes, until he suddenly interrupted me and said:  “Yuri, hope isn’t a strategy.” He then got up and left the room, leaving me to awkwardly finish the final 20 min of the meeting with his other partners…

…I spent a lot of time being offended and angry at how that partner behaved in that meeting. And while I continue to think he could have acted nicer — he was also right. We *didn’t* have a plan on how to get customers at that point, and we weren’t ready to raise our next round.

2. When Jeff Bezos’s 2-Pizza Teams Fell Short, He Turned to the Brilliant Model Amazon Uses Today – Jeff Haden

You’ve probably heard of Amazon’s two-pizza-team rule: No team should be larger than the number of people that can be adequately fed by two large pizzas.

What you likely don’t know is that despite the approach’s initial success, few people inside Amazon actually talk about two-pizza teams.

Instead, the model was gradually refined and ultimately replaced by a far more capable type of team model, one still in use today…

…Amazon found that the biggest predictor of a team’s success wasn’t whether it was small but whether it had a leader with “the appropriate skills, authority, and experience to staff and manage a team whose sole [my italics] focus was to get the job done.”

Or as Amazon’s SVP of devices, Dave Limp, said, “The best way to fail at inventing something is by making it somebody’s part-time job.”

That’s why, in time, two-pizza teams evolved into single-threaded leader (STL) teams, a term borrowed from computer science that means to only work on one thing at a time.

Single-threaded is term borrowed from computer science that means to only work on one thing at a time.

One example of how a single-threaded leader team succeeded where two-pizza teams failed? The idea that became Fulfillment by Amazon (FBA).

The idea behind FBA was simple: give third-party sellers access to Amazon’s warehouse and shipping services.

The benefits for third-party sellers were clear: Merchants would send products to Amazon for Amazon to store, pick, pack, and ship on their behalf, not only eliminating a third-party seller’s logistics headaches, but making warehousing costs variable rather than fixed.

Executives in retail and operations teams thought FBA was a great idea, but for well over a year nothing happened. They were all “exceptionally capable people, but they didn’t have the bandwidth to manage the myriad details FBA entailed,” the authors write.

Then Tom Taylor, a VP at the time, was asked to drop all his other responsibilities and was given full authority to hire and staff a team. Crucially, that team was also given sufficient autonomy to build and roll out their assigned task–without coordinating with or seeking approval from other teams.

In short, one highly skilled person was put in charge — and not only had the authority to see the project through, but was allowed to focus solely on seeing the project through.

3. The company that modern capitalism couldn’t survive long without – Samanth Subramanian

Which makes it all the more remarkable that a single Dutch company sits at the very heart of this $439 billion industry. At its headquarters in Veldhoven, in the Netherlands, ASML assembles photolithography machines, which etch circuit patterns onto chip wafers using low-wavelength light. Other companies make such machines too, but ASML controls more than 60% of the market; in 2019, its revenue was 11.8 billion euros ($13.2 billion). It is also the only manufacturer of the latest, most precise generation of chip-making machines, which uses extreme ultraviolet light (EUV), with a wavelength of 13.5 nanometers—a ten-thousandth the width of a human hair.

It’s difficult to think of another company anywhere that is simultaneously this important and yet this unknown to the public at large. If Veldhoven vanished tomorrow, our version of capitalism—our cellphone-toting, remote-working, Netflix-binging, online-buying, cloud-storing, smart car-driving, Internet-of-Things-ing capitalism—would judder to a halt. ASML isn’t a monopoly, but its market depends upon its technology to a degree that can almost be discomfiting…

…The world’s largest consumer of semiconductor chips is China; in 2020, the country imported 543 billion chips, worth around $350 billion. Its state-owned chipmaker, SMIC, was founded in 2000. “Back then, the manufacturing didn’t have to be as precise, so it didn’t matter if you didn’t have clean rooms or if a truck rolling down the road outside shook the building minutely,” Sinha said.

But over the past decade or so, the processes have become much more exacting. At the same time, Sinha said, the US government grew worried about what China might use cutting-edge chips for, and what surveillance technology it might install on any chips it sells to the world. “The concern was, if you allow China to go and make chips at scale using an EUV, those chips would be impossible to scrutinize with all their billions of transistors on them,” Sinha said. Under US pressure, chipmakers were restricted from selling their products to Huawei. Along similar lines, ASML’s EUV was placed on the Wassenaar list, a multilateral regime that controls the export of several critical technologies to non-member states such as China.

It doesn’t take any great insight into the human psyche to discover what Wennink, ASML’s CEO, thinks of not being able to sell to the world’s biggest market. He knows that behind the ban on selling EUVs to China is not just a worry about national security but also an act of economic one-upmanship—a desire to keep China dependent on non-Chinese vendors. Most military applications don’t even need cutting-edge chips from EUVs, he argued. They can work just fine with older chips. “And the argument we make to governments is that…our equipment is part of a production system for products that are so multifunctional and general purpose,” Wennink said. “They help process medical data. Or traffic data… You try to educate governments that a sanction will slow innovation, and costs will go up.”

4. Google Director Of Engineering: This is how fast the world will change in ten years – Michael Simmons

Ray Kurzweil, the director of engineering at Google and arguably the world #1 futurist, breaks down what the second half of the exponential curve better than anyone else in his book, The Singularity Is Near.

Kurzweil’s basic premise is this: “The future will be far more surprising than most people realize.”

The reason it’ll be more surprising, he argues, is, “because few observers have truly internalized the implications of the fact that the rate of change itself is accelerating.” In other words, “an exponential curve looks like a straight line when examined for only a brief duration. As a result, even sophisticated commentators, when considering the future, typically extrapolate the current pace of change over the next ten years or one hundred years to determine their expectations.”…

…“My models show that we are doubling the paradigm-shift rate every decade.” — Ray Kurzweil…

…To summarize the profundity of this 10-year doubling rate, Kurzweil says:

“We won’t experience one hundred years of technological advance in the twenty-first century; we will witness on the order of twenty thousand years of progress (again, when measured by today’s rate of progress), or about one thousand times greater than what was achieved in the twentieth century.”

Let that sink in for a second…

…“In order to keep up with the world of 2050, you will need not merely to invent new ideas and products but above all to reinvent yourself again and again.” — Yuval Noah Harari

To recap, we are on the precipice of an era of extreme competition — which means that the amount and pace of competition will accelerate 4x in the next 20 years. If you don’t prepare now, you will be progressively outcompeted and overwhelmed. So the question becomes, how do you want to run the race?

A few options emerge:

1. Follow the pace of the crowd: In other words, do what most people are doing (i.e. get a 9–5 job and do what’s expected of you). This is the least stressful option in the short-term, but you risk falling behind in the long-term.
2. Work harder than others: This helps you progress in your career faster, but you sacrifice time with family & friends along with personal health… not to mention that you risk losing out to people who are learning more than you.
3. Outlearn others and let your knowledge compound: Learning is the ultimate productivity hack. In other words, it provides the greatest leverage. It’s the tool that the greatest innovators and business thinkers of our time (Elon Musk, Jeff Bezos, Bill Gates, Warren Buffett, and others) use to get ahead.

5. Bill Hwang Had $20 Billion, Then Lost It All in Two Days –  Erik Schatzker, Sridhar Natarajan, and Katherine Burton

Before he lost it all—all $20 billion—Bill Hwang was the greatest trader you’d never heard of.

Starting in 2013, he parlayed more than $200 million left over from his shuttered hedge fund into a mind-boggling fortune by betting on stocks. Had he folded his hand in early March and cashed in, Hwang, 57, would have stood out among the world’s billionaires. There are richer men and women, of course, but their money is mostly tied up in businesses, real estate, complex investments, sports teams, and artwork. Hwang’s $20 billion net worth was almost as liquid as a government stimulus check. And then, in two short days, it was gone.

The sudden implosion of Hwang’s Archegos Capital Management in late March is one of the most spectacular failures in modern financial history: No individual has lost so much money so quickly. At its peak, Hwang’s wealth briefly eclipsed $30 billion. It’s also a peculiar one…

…He became the biggest of whales—financial slang for someone with a dominant presence in the market—without ever breaking the surface. By design or by accident, Archegos never showed up in the regulatory filings that disclose major shareholders of public stocks. Hwang used swaps, a type of derivative that gives an investor exposure to the gains or losses in an underlying asset without owning it directly. This concealed both his identity and the size of his positions. Even the firms that financed his investments couldn’t see the big picture.

That’s why on Friday, March 26, when investors around the world learned that a company called Archegos had defaulted on loans used to build a staggering $100 billion portfolio, the first question was, “Who on earth is Bill Hwang?” Because he was using borrowed money and levering up his bets fivefold, Hwang’s collapse left a trail of destruction. Banks dumped his holdings, savaging stock prices. Credit Suisse Group AG, one of Hwang’s lenders, lost $4.7 billion; several top executives, including the head of investment banking, have been forced out. Nomura Holdings Inc. faces a loss of about $2 billion…

…On March 25, when Hwang’s financiers were finally able to compare notes, it became clear that his trading strategy was strikingly simple. Archegos appears to have plowed most of the money it borrowed into a handful of stocks—ViacomCBS, GSX Techedu, and Shopify among them. This was no arbitrage on collateralized bundles of obscure financial contracts. Hwang invested the Tiger way, using deep fundamental analysis to find promising stocks, and he built a highly concentrated portfolio. The denizens of Reddit’s WallStreetBets day trading on Robinhood can do almost the same thing, riding such popular themes as cord cutting, virtual education, and online shopping. Only no brokerage will extend them anywhere near the amount of leverage billionaires get…

…U.S. rules prevent individual investors from buying securities with more than 50% of the money borrowed on margin. No such limits apply to hedge funds and family offices. People familiar with Archegos say the firm steadily ramped up its leverage. Initially that meant about “2x,” or $1 million borrowed for every $1 million of capital. By late March the leverage was 5x or more.

Hwang also kept his banks in the dark by trading via swap agreements. In a typical swap, a bank gives its client exposure to an underlying asset, such as a stock. While the client gains—or loses—from any changes in price, the bank shows up in filings as the registered holder of the shares.

That’s how Hwang was able to amass huge positions so quietly. And because lenders had details only of their own dealings with him, they, too, couldn’t know he was piling on leverage in the same stocks via swaps with other banks. ViacomCBS Inc. is one example. By late March, Archegos had exposure to tens of millions of shares of the media conglomerate through Morgan Stanley, Goldman Sachs Group Inc., Credit Suisse, and Wells Fargo & Co. The largest holder of record, indexing giant Vanguard Group Inc., had 59 million shares…

…The fourth quarter of 2020 was a fruitful one for Hwang. While the S&P 500 rose almost 12%, seven of the 10 stocks Archegos was known to hold gained more than 30%, with Baidu, Vipshop, and Farfetch jumping at least 70%.

All that activity made Archegos one of Wall Street’s most coveted clients. People familiar with the situation say it was paying prime brokers tens of millions of dollars a year in fees, possibly more than $100 million in total. As his swap accounts churned out cash, Hwang kept accumulating extra capital to invest—and to lever up. Goldman finally relented and signed on Archegos as a client in late 2020. Weeks later it all would end in a flash.

The first in a cascade of events during the week of March 22 came shortly after the 4 p.m. close of trading that Monday in New York. ViacomCBS, struggling to keep up with Apple TV, Disney+, Home Box Office, and Netflix, announced a $3 billion sale of stock and convertible debt. The company’s shares, propelled by Hwang’s buying, had tripled in four months. Raising money to invest in streaming made sense. Or so it seemed in the ViacomCBS C-suite.

Instead, the stock tanked 9% on Tuesday and 23% on Wednesday. Hwang’s bets suddenly went haywire, jeopardizing his swap agreements. A few bankers pleaded with him to sell shares; he would take losses and survive, they reasoned, avoiding a default. Hwang refused, according to people with knowledge of those discussions, the long-ago lesson from Robertson evidently forgotten.

That Thursday his prime brokers held a series of emergency meetings. Hwang, say people with swaps experience, likely had borrowed roughly $85 million for every $20 million, investing $100 and setting aside $5 to post margin as needed. But the massive portfolio had cratered so quickly that its losses blew through that small buffer as well as his capital.

The dilemma for Hwang’s lenders was obvious. If the stocks in his swap accounts rebounded, everyone would be fine. But if even one bank flinched and started selling, they’d all be exposed to plummeting prices. Credit Suisse wanted to wait.

Late that afternoon, without a word to its fellow lenders, Morgan Stanley made a preemptive move. The firm quietly unloaded $5 billion of its Archegos holdings at a discount, mainly to a group of hedge funds. On Friday morning, well before the 9:30 a.m. New York open, Goldman started liquidating $6.6 billion in blocks of Baidu, Tencent Music Entertainment Group, and Vipshop. It soon followed with $3.9 billion of ViacomCBS, Discovery, Farfetch, Iqiyi, and GSX Techedu.

When the smoke finally cleared, Goldman, Deutsche Bank AG, Morgan Stanley, and Wells Fargo had escaped the Archegos fire sale unscathed. There’s no question they moved faster to sell. It’s also possible they had extended less leverage or demanded more margin. As of now, Credit Suisse and Nomura appear to have sustained the greatest damage. Mitsubishi UFJ Financial Group Inc., another prime broker, has disclosed $300 million in likely losses.

6. Here’s how Lazada lost its lead to Shopee in Southeast Asia (Part 1 of 2) – Late Post

Southeast Asia’s homegrown e-commerce platform, Shopee, is a pioneer in more ways than one. Formed in 2015, it is an offshoot of gaming company Garena, helmed by founders who studied abroad and worked overseas for multinational companies. Its fourth quarter and full year 2020 financial reports indicate that Shopee’s turnover for the year was USD 35.4 billion, double that of 2019 and accounting for 57% of the entire Southeast Asian e-commerce market’s transaction volume.

Yet Shopee’s position is far from secure, as a seasoned online retailer from China wants a piece of the market too. Alibaba (NYSE: BABA; HKG: 9988), China’s largest e-commerce company, has been sparing no effort to extend its reach in the region. Southeast Asia was the largest and first overseas market where Alibaba landed. Alibaba CEO Daniel Zhang Yong and co-founder Peng Lei flew into the region for meetings on a monthly basis. In 2016, when Shopee was still a fledgling firm, Alibaba acquired Lazada, which was at the time the largest e-commerce company in the region.

Now, Shopee seems to have captured the lion’s share of the market. Its parent company, Sea Limited (NYSE: SE), is the largest tech company in the region, with a market value of nearly USD 130 billion…

…A good number of former Alibaba employees believed that selecting a suitable region for expansion was a simple matter. “Amazon’s home turf is in the Americas and Europe, and there is almost no chance of succeeding there. Russia and the Middle East are close to China, but their slower speed of economic development is not ideal. India is a potential area for investment, but it is impossible to do it without the assistance of local partners. Africa and Southeast Asia are the only two regions left. Compared to Southeast Asia, Africa’s distance from China and limited human resources pool is a problem,” they said to LatePost…

…Alibaba entered the regional market through Lazada, which was established in Singapore in 2012. Lazada contains the DNA of German incubator Rocket Internet, which itself is notorious for being a “copycat factory” that duplicates business models lifted from Silicon Valley and transplants them in new locations abroad.

By 2015, Lazada’s GMV had exceeded USD 1.3 billion, surpassing Indonesian counterpart Tokopedia to become the region’s leading e-commerce platform. Not long after, in April 2016, Alibaba bought a 51% stake in Lazada, then followed up with an investment of USD 1 billion in June 2017 to raise its stake to 83%…

…Following the acquisition, Alibaba promised Lazada that it would be able to maintain independent operations, but disagreements and conflict quickly broke out.

“For example, in 2017, Cainiao [Alibaba’s delivery provider] wanted to build a 10,000 sqm warehouse, but Lazada wanted to try one that was 5,000 sqm first,” said a Lazada insider. “That year, Alibaba also wanted to bring some major international brands to Lazada, but Lazada’s employees felt that these brands were too expensive and would not be received well by locals.”

In order to ensure that its directives would be implemented, Alibaba decided to transform Lazada’s internal structure, announcing in March 2018 that Peng Lei, Ant Financial’s former CEO, would take over as CEO of Lazada, as part of the terms of a USD 2 billion investment.

After this mammoth financing, Lazada did not immediately move to counteract its competitors, but instead began the process of cleaning up its internal organization. A Lazada advertising supplier told LatePost that because Lazada was almost a wholly owned subsidiary, account management across multiple countries was now more complicated, and until this could be sorted out, budgeting and spending nearly ground to a halt…

…At the end of 2017, Shopee’s parent company, Garena, changed its name to Sea Limited and listed on the New York Stock Exchange at a value of USD 6.3 billion.

“After it went public, many Shopee people sold their stock,” said an investor of Shopee. “They didn’t believe that it was possible for it to grow bigger.”

In 2018, however, Shopee seized the opportunity to launch an offensive in light of Lazada’s stagnation in Southeast Asia, led by CEO Chris Feng. Today, Shopee’s market capitalization has exceeded USD 120 billion. It is said by Shopee’s employees that 80% of Sea Limited’s stock price is supported by Shopee’s growth potential, while 80% of Shopee is supported by Feng.

Chris Feng is a native of Huai’an, Jiangsu, and received a scholarship from the Singaporean government in 2000 when he was a sophomore in high school. Later, he attended the National University of Singapore to study computer science, and pursued further studies at Stanford University. He joined McKinsey and then moved to Rocket Internet, where he became responsible for Lazada’s cross-border business.

Insiders close to Feng say he led a team’s defection from Lazada to join Garena in 2014 due to dissatisfaction with the situation at Lazada. He founded the mobile games division of Garena and started Shopee a year later. According to people familiar with the matter, he is well respected by his subordinates and characterized as a “very, very smart and very, very confident” person who “reacts quickly and has excellent abilities of recall.” Reportedly, he holds large-scale meetings involving dozens of individuals every two weeks, and can casually invoke data and information mentioned during previous meetings with ease.

On weekdays, Feng is known to wear Shopee’s team shirts, only donning formal suits on formal occasions. He still lives in affordable public housing (HDB) flats set up by the Singaporean government. A longtime friend of his has commented that Feng does not value money, but is “really a person who wants to do big things.”

Feng’s experience and contacts in Lazada are said to have been crucial to Shopee’s growth. For example, he was keenly aware of Lazada’s chaotic situation in 2018 and seized the chance to launch an offensive.

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

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

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

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

Here are the articles for the week ending 4 April 2021:

1. How mRNA Technology Could Change the World – Derek Thompson

But mRNA’s story likely will not end with COVID-19: Its potential stretches far beyond this pandemic. This year, a team at Yale patented a similar RNA-based technology to vaccinate against malaria, perhaps the world’s most devastating disease. Because mRNA is so easy to edit, Pfizer says that it is planning to use it against seasonal flu, which mutates constantly and kills hundreds of thousands of people around the world every year. The company that partnered with Pfizer last year, BioNTech, is developing individualized therapies that would create on-demand proteins associated with specific tumors to teach the body to fight off advanced cancer. In mouse trials, synthetic-mRNA therapies have been shown to slow and reverse the effects of multiple sclerosis. “I’m fully convinced now even more than before that mRNA can be broadly transformational,” Özlem Türeci, BioNTech’s chief medical officer, told me. “In principle, everything you can do with protein can be substituted by mRNA.”

In principle is the billion-dollar asterisk. mRNA’s promise ranges from the expensive-yet-experimental to the glorious-yet-speculative. But the past year was a reminder that scientific progress may happen suddenly, after long periods of gestation. “This has been a coming-out party for mRNA, for sure,” says John Mascola, the director of the Vaccine Research Center at the National Institute of Allergy and Infectious Diseases. “In the world of science, RNA technology could be the biggest story of the year. We didn’t know if it worked. And now we do.”…

…“There was a lot of skepticism in the industry when we started, because this was a new technology with no approved products,” Türeci told me. “Drug development is highly regulated, so people don’t like to deviate from paths with which they have experience.” BioNTech and Moderna pressed on for years without approved products, thanks to the support of philanthropists, investors, and other companies. Moderna partnered with the NIH and received tens of millions of dollars from DARPA, the Defense Advanced Research Projects Agency, to develop vaccines against viruses, including Zika. In 2018, Pfizer signed a deal with BioNTech to develop mRNA vaccines for the flu.

“The technology initially appealed to us for the flu because of its great speed and flexibility,” Philip Dormitzer, who leads Pfizer’s viral-vaccines research and development programs, told me. “You can edit mRNA very quickly. That is quite useful for a virus like the flu, which requires two updated vaccines each year, for the Northern and Southern Hemisphere.”

By the time the coronavirus outbreak shut down the city of Wuhan, China, Moderna and BioNTech had spent years fine-tuning their technology. When the outbreak spread throughout the world, Pfizer and BioNTech were prepared to shift immediately and redirect their flu research toward SARS-CoV-2. “It was really a case of our researchers swapping the flu protein for the coronavirus spike protein,” Dormitzer said. “It turned out that it wasn’t that big a leap.”

Armed with years of mRNA clinical work that built on decades of basic research, scientists solved the mystery of SARS-CoV-2 with astonishing speed. On January 11, 2020, Chinese researchers published the genetic sequence of the virus. Moderna’s mRNA vaccine recipe was finalized in about 48 hours. By late February, batches of the vaccine had been shipped to Bethesda, Maryland, for clinical trials. Its development was accelerated by the Trump administration’s Operation Warp Speed, which invested billions of dollars in several vaccine candidates, including Moderna’s. With the perfect timing of a Hollywood epic, mRNA entered the promised land after about 40 wandering years of research. Scientific progress had proceeded at its typical two-speed pace—slowly, slowly, then all at once.

2. More accuracy – Robert Vinall

As I look back on the letter, it struck me that the importance I place on striving for an accurate picture of the future might seem so obvious as to be hardly worth mentioning. After all, if a company’s intrinsic value is the sum of discounted future cash flow, why on earth would you not want to form as accurate a view of the future as possible? I can imagine my insistence on this point is particularly puzzling to younger investors whose formative years have been dominated by the boom in Internet stocks. “Doh!” they might exhort, “Of course you have to skate to where the puck is going, not where it was.” 

The reason it is not obvious to older generations of value investors is that in our formative years, investing based on the assumption that historical patterns of cashflow generation would reassert themselves – better known as “reversion to the mean” – seemed the better strategy. Many of the great investing track records were built by investing in stable, unchanging businesses when they went through a period of underperformance on the assumption that they would eventually recover. It was an approach to investing that was based on a good understanding of a company’s history and the assumption that the future would not look too different to the past. It worked far better than betting on companies with short histories and big plans for the future, and it seemed obvious that it would continue to.

These two contrasting approaches to investing – one placing more weight on the future; the other on the past – are a reminder that the optimal strategy is a function of the era you invest in. If you are in a market characterised by rapid and widespread change, it pays to be forward-looking despite the inherent difficulty of judging the future. If, on the other hand, you are in a market where the pace of change is slower and more localised, then it may simply be better to bet on reversion to the mean as the future is too uncertain and genuine change too infrequent.

The contrasting outcomes of different brands of value investing in different eras pose an intriguing question. If each era selects for the type of investor who is best adapted to it, does the younger investor have an edge over the older one? My strong sense is “yes”. I am fortunate to know several successful younger investors, and they seem perfectly adapted to the market they invest in. I, by contrast, have had to adapt, which in practice does not so much mean learning new tricks as unlearning old ones. The former is certainly easier than the latter as learning is fun, but parting ways with cherished ideas is painful. Reluctant though I am to acknowledge it, as grey hairs begin to colonise my scalp, experience is a disadvantage.

In one important respect though, there is an advantage to experience. When the nature of the market does change, it should, at least in theory, be easier for the investor that has lived through different types of market to adapt than for the investor who has only experienced one type. The younger investor suddenly finds themselves in the position of the older investor without the benefit of having experienced a change in the market before.

In practice, however, few investors have sustained multidecade success. This may not solely be down to how difficult it is. It could also be that the rewards to the stellar performer are so great in one era that they lose interest in competing in the next one when they realise that their skills are no longer as finely attuned to the market. For sure though, it is a monumental challenge.

To increase the chances of adapting to different markets, I see one big thing an investor should do and one big thing they should not. The single biggest thing they should do is commit to adapt. The single biggest thing an investor should not do is tie themselves to a particular investment style or geography or industry or any other categorisation.  These two points may sound obvious but generally, fund managers do the complete opposite. Investors in funds tend to look for a specific niche expertise in fund managers, and fund managers respond to this by developing a personal brand for a particular style of investing or segment of the market. Their brand promise is that they will not adapt.

3. Moore’s Law for Everything – Sam Altman

In the next five years, computer programs that can think will read legal documents and give medical advice. In the next decade, they will do assembly-line work and maybe even become companions. And in the decades after that, they will do almost everything, including making new scientific discoveries that will expand our concept of “everything.”

This technological revolution is unstoppable. And a recursive loop of innovation, as these smart machines themselves help us make smarter machines, will accelerate the revolution’s pace. Three crucial consequences follow:

1. This revolution will create phenomenal wealth. The price of many kinds of labor (which drives the costs of goods and services) will fall toward zero once sufficiently powerful AI “joins the workforce.”
2. The world will change so rapidly and drastically that an equally drastic change in policy will be needed to distribute this wealth and enable more people to pursue the life they want.
3. If we get both of these right, we can improve the standard of living for people more than we ever have before.

Because we are at the beginning of this tectonic shift, we have a rare opportunity to pivot toward the future. That pivot can’t simply address current social and political problems; it must be designed for the radically different society of the near future. Policy plans that don’t account for this imminent transformation will fail for the same reason that the organizing principles of pre-agrarian or feudal societies would fail today…

…AI will lower the cost of goods and services, because labor is the driving cost at many levels of the supply chain. If robots can build a house on land you already own from natural resources mined and refined onsite, using solar power, the cost of building that house is close to the cost to rent the robots. And if those robots are made by other robots, the cost to rent them will be much less than it was when humans made them.

Similarly, we can imagine AI doctors that can diagnose health problems better than any human, and AI teachers that can diagnose and explain exactly what a student doesn’t understand…

…The traditional way to address inequality has been by progressively taxing income. For a variety of reasons, that hasn’t worked very well. It will work much, much worse in the future. While people will still have jobs, many of those jobs won’t be ones that create a lot of economic value in the way we think of value today. As AI produces most of the world’s basic goods and services, people will be freed up to spend more time with people they care about, care for people, appreciate art and nature, or work toward social good.

We should therefore focus on taxing capital rather than labor, and we should use these taxes as an opportunity to directly distribute ownership and wealth to citizens. In other words, the best way to improve capitalism is to enable everyone to benefit from it directly as an equity owner

This is not a new idea, but it will be newly feasible as AI grows more powerful, because there will be dramatically more wealth to go around. The two dominant sources of wealth will be 1) companies, particularly ones that make use of AI, and 2) land, which has a fixed supply…

…We could do something called the American Equity Fund. The American Equity Fund would be capitalized by taxing companies above a certain valuation 2.5% of their market value each year, payable in shares transferred to the fund, and by taxing 2.5% of the value of all privately-held land, payable in dollars.

All citizens over 18 would get an annual distribution, in dollars and company shares, into their accounts. People would be entrusted to use the money however they needed or wanted—for better education, healthcare, housing, starting a company, whatever. Rising costs in government-funded industries would face real pressure as more people chose their own services in a competitive marketplace.

As long as the country keeps doing better, every citizen would get more money from the Fund every year (on average; there will still be economic cycles). Every citizen would therefore increasingly partake of the freedoms, powers, autonomies, and opportunities that come with economic self-determination. Poverty would be greatly reduced and many more people would have a shot at the life they want.

4. The Robots Are Coming For Your Office – Nilay Patel and Kevin Roose

[Patel] You just said, “We’re journalists, it’s an industry that employs automation to do parts of our job.” I think that gets kinda right to the heart of the matter, which is the definition of automation, right?

I think when most people think of automation, they think of robots building cars and replacing factory workers in Detroit. You are talking about something much broader than that.

[Roose] Yeah. I mean, that’s sort of the classic model of automation. And still, every time there’s a story about automation — and I hate this, and it’s like my personal vendetta against newspaper and magazine editors — every time you see a story about automation, there’s always a picture of a physical robot. And I get it. Most robots that we think of from sci-fi are physical robots. But most robots that exist in the world today, by a vast majority, are software.

And so, what you’re seeing today in corporate environments, in journalism, in lots of places, is that automation is showing up as software, that does parts of the job that, frankly, I used to do. My first job in journalism was writing corporate earnings stories. And that’s a job that has been largely automated by these software products now…

…[Patel] How big is the total RPA market right now?

[Roose] It’s in the billions of dollars. I don’t know the exact figure, but the biggest companies in this are called UiPath and Automation Anywhere and there are other companies in this space, like Blue Prism. But just UiPath alone is valued at something like $35 billion and is expected to IPO later this year. So, these are large companies that are doing many billions of dollars in revenue a year, and they’re working with most of the Fortune 500 at this point.

[Patel] And the actual product they sell, is it basically software that uses other software?

[Roose] A lot of it is that. A lot of it is, this bot will convert between these two file formats or it’ll do sort of basic-level optical character recognition so that you can scan expense reports and import that data into Excel, or something like that. So, a lot of it is pretty simple. You know, a lot of AI researchers don’t even consider RPA AI, because so much of it is just like static, rule-based algorithms. But a lot of them are starting to layer on more AI and predictive capability and things like that…

…[Patel] That feels like I could map it to a pretty familiar consumer story. You’ve got a factory, it’s got some output. It’s almost like a video game, right? You’ve got a factory, it’s got some output, you need to make X, Y, and Z parts in various quantities and you need to deliver on a certain time. And to some extent, your job is to play tower defense and just fill all the bins at the right time. Or you could just play against the computer and the computer will beat you every time. That’s what that seems like. It seems very obvious that you should just let the computer do it.

[Roose] Totally. And that’s the logic that a lot of executives have. And I don’t even know that that’s the wrong logic. Like I don’t think we should be preserving jobs that can be automated just to preserve jobs. The concern, I think I, and some other folks who watch this industry have, is that this type of automation is purely substitutive.

So in the past we’ve had automation that carried positive consequences and negative consequences. So the factory machines put some people out of their jobs, but they created many more jobs and they lowered the cost of the factories’ goods and they made it more accessible to people and so people bought more of them. And it had this kind of offsetting effect where you had some workers losing their jobs, but more jobs being created elsewhere in the economy that those people could then go do.

And the concern that the economists that I’ve talked to had, was that this kind of RPA, like replacing people in the back office, like it’s not actually that good.

It’s not the good kind of automation that actually does move the economy forward. It’s kind of this crappy, patchwork automation that purely takes out people and doesn’t give them anything else to do. And so I think on a macroeconomic level, the problem with this kind of automation is not actually how advanced it is, it’s how simple it is. And if we are worried about the sort of future of the economy and jobs, we should actually want more sophisticated AI, more sophisticated automation that could actually create sort of dynamic, new jobs for these people who are displaced, to go into…

…[Patel] So you’ve called them boring bots. You say the technology is not so sophisticated. The industry calls it RPA. Like, there’s a lot of pressure on making this seem not the most technologically sophisticated or exciting thing. It comes with a lot of change, but I’m wondering, are there any stories of RPA going horribly wrong?

[Roose] I’m just imagining like, I think the most consumer-facing automation is, you call the customer support line and you go through the phone tree. It makes all the sense in the world on paper: if all I need is the balance of my credit card, I should just press 5 and a robot will read it to me, but like I just want to talk to a person every time. Because that phone tree never has the options I want or it’s always confused or something is wrong. There has to be a similar story in the back office where the accounting software went completely sideways and no one caught it, right?

Yeah, I mean, there’s several stories like that in the book. There’s a trading firm called Knight Capital that had an algorithm go haywire and it lost millions of dollars in milliseconds. There was actually just a story in the financial markets — I forget who it was, it was one of the big banks — accidentally wired hundreds of millions of dollars to someone else and couldn’t get it back. And so it was just like, they just lost that. I’m sure that automation had some role in that, but that might have been a human error.

But there are also lower-level instances of this going haywire. One of the examples I talk about in the book is this guy Mike Fowler, who is an Australian entrepreneur who came up with a way to automate T-shirt design. So, I don’t know if you remember like five or six years ago, but there were all these auto-generated T-shirts on Facebook that were advertised. So, you know, it’d be like, “Kiss me, I’m a tech blogger who loves punk rock.” You know, and those would just be like Mad Libs, you know?…

…And so he made a lot of money doing this, and then one day it went totally wrong because he hadn’t cleaned up the word bank that this algorithm drew from. So there were people noticing shirts for sale on Amazon that were saying things like “Keep calm and hit her,” or, “Keep calm and rape a lot.” Like just words that he had forgotten to clean out of the database, and so as a result, his store got taken down. He lost all his business. He had to change jobs, like it was a traumatic event for him. And that’s a colorful example but there are, I’m sure, lots of more mundane examples of this happening at places that have implemented RPA.

5. The Big Lessons of the Last Year – Morgan Housel

Jason Zweig explained years ago that part of the reason the same mistakes repeat isn’t because people don’t learn their lesson; it’s because people “are too good at learning lessons, and they learn overprecise lessons.”

A good lesson from the dot-com bust was the perils of overconfidence. But the lesson most people took away was “the stock market becomes overvalued when it trades at a P/E ratio over 30.” It was hyperspecific, so many of the same investors who lost their shirts in 2002 got up and walked straight into the housing bubble, where they lost again.

The most important lessons from a big event are usually the broad, 30,000-foot takeaways. They’re more likely to apply to the next iteration of crisis.

Covid-19 is far from over, but we’re now more than a year into this tragic mess. Enough has happened that we can start to ask “what lessons have we learned?” If you’re a doctor or a health regulator, some of those lessons are hyperspecific. But for most of us the biggest lessons are broad…

…A virus shutting down the global economy and killing millions of people seemed remote enough for most people to never contemplate. Before a year ago it sounded like the one-in-billions freak accident only seen in movies.

But break the last year into smaller pieces.

A virus transferred from animal to human (has happened forever) and those humans interacted with other people (of course). It was a mystery for a while (understandable) and bad news was likely suppressed (political incentives, don’t yell fire in a theater). Other countries thought it would be contained (exceptionalism, standard denial) and didn’t act fast enough (bureaucracy, lack of leadership). We weren’t prepared (common over-optimism) and the reaction to masks and lockdowns became heated (of course) so as to become sporadic (diversity, same as ever). Feelings turned tribal (standard during an election year) and a rush to move on led to premature reopenings (standard denial, the inevitability of different people experiencing different realities).

Each of those events on their own seems obvious, even common. But when you multiply them together you get something surprising, even unprecedented.

Big risks are always like that, which makes them too easy to underestimate. How starkly we have been reminded over the last year.

6. What Is Archegos and How Did It Rattle the Stock Market –  Juliet Chung and Margot Patrick

Archegos is the family investment vehicle owned by Mr. Hwang, a former protégé of hedge-fund titan Julian Robertson. Mr. Hwang was a so-called Tiger cub, an offshoot of Mr. Robertson’s Tiger Management. Mr. Hwang founded Tiger Asia in 2001. Based in New York, it went on to become one of the biggest Asia-focused hedge funds, running more than $5 billion at its peak. In 2008, it was one of a swath of funds that suffered losses related to the soaring share price of Volkswagen AG of Germany

In 2012, Tiger Asia said it planned to hand money back to investors. Later that year, the firm pleaded guilty to a criminal fraud charge for using inside information from investment banks to profit on securities trades. Mr. Hwang and Tiger Asia paid $44 million to settle a related civil lawsuit, The Wall Street Journal reported at the time.

Mr. Hwang turned Tiger Asia into his family office and renamed it Archegos, according to its website…

…Archegos took big, concentrated positions in companies and held some positions via something called “total return swaps.” Those are contracts brokered by Wall Street banks that allow a user to take on the profits and losses of a portfolio of stocks or other assets in exchange for a fee.

Swaps allow investors to take huge positions while posting limited funds up front, in essence borrowing from the bank. The use of swaps allowed Mr. Hwang to maintain his anonymity, even as Archegos was estimated to have had exposure to the economics of more than 10% of multiple companies’ shares. Investors holding more than 10% of a company’s securities are deemed to be company insiders and are subject to additional regulations around disclosures and profits.

Swaps are common and have been around for a long time. They are also controversial. Long Term Capital Management, a hedge fund advised by two Nobel laureates that nearly brought down Wall Street in the late 1990s, used swaps. Warren Buffett wrote about the risks of swaps in his 2003 letter to investors.

7. Twitter thread on how a software entrepreneur burned US$10 million – Andrew Wilkinson

This is a story about how I lost $10,000,000 by doing something stupid. Ten. Million. Dollars. Literally up in smoke. Money bonfire. That’s enough to retire with $250,000+ in annual income. Here’s what happened…

In 2009, @metalab was a small but profitable agency. The business was making a couple hundred thousand dollars a year in annual profit and I was trying to figure out how to invest the profits. Agencies can be great businesses, but they are HARD.

You lose clients at random, your pipeline dries up on a dime. It’s feast or famine and unpredictable. I kept reading about what  @dhh and @jasonfried were doing with Basecamp, building software for themselves then selling monthly access to it.

This was a relatively new concept back in those days, and it seemed like they were living the dream. I had a business crush. The model they used for Basecamp was:

1. Build great software that scratched their own itch (project management)
2. Assume others have this problem
3. Charge a monthly recurring amount to give them access (SaaS)
4. Focus on organic growth via product improvement and public writing
5. Spend less than they make
6. Profit…

…I loved Jason and David’s focus on building a business on your own terms, in a way that made you happy. I hated the idea of having some annoying VC involved, pressuring me to grow or move to San Francisco (believe it or not, that was almost 100% required at the time)…

…I was a huge to-do list junkie, but back then all of the task apps were either single-player or weird desktop apps with syncing issues. I decided to build a shared to-do list app for teams.

I grabbed a couple of devs from the agency and we started working on it. About 9 months later we were in beta. We called it Flow, and it was actually really cool. From day one, it was a huge hit. A lot of people had the same problem and there was nothing else like it…

…When we turned on billing for our beta users, we jumped to $20k MRR in the first month. We started growing at 10% per month and were the new hotness. I got reach outs from all the top VCs and tons of tech luminaries started using the product. We’d made it…or so I thought.

There was just one problem: I was consistently spending 2-3x our monthly revenue and losing money. And not venture capital. Out of my personal bank account.

Then I heard a name start popping up. Quietly at first, then a lot. Asana.

It turned out that Dustin Moskovitz (@moskov), the billionaire co-founder of Facebook, was a fellow to-do list junkie, and he was quietly working on his own product. A few months later it went live. And I breathed a big sigh of relief.

It was ugly! It was designed by engineers. Complicated and hard to use. Not a threat in the slightest. I felt validated: With a team a quarter of the size, and a fraction of the money, we had built what I felt was a superior product.

Around this time, Dustin invited me for a coffee in San Francisco. He implied—in the nicest possible terms—that they were going to crush us. (Emphasis on nice, he is a very nice, humble dude. Both Dustin and @christianreber, my two key competitors, turned out to be mensches)

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