What We’re Reading (Week Ending 18 October 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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

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

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

Here are the articles for the week ending 18 October 2020:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. John Quincy Adams

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

12. Zachary Taylor

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

13. Millard Fillmore

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

20. James Garfield

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

23. Benjamin Harrison

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

26. Theodore Roosevelt

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

32. Franklin D. Roosevelt

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

33. Harry S. Truman

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

35. John F. Kennedy

See also inflation.

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

44. Barack Obama

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

45. Donald Trump

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

Bonus: Joe Biden

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

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

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

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

And a depression was stopped in its tracks.

I have more questions than answers:

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

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

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

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

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

The Fed is the alien in this example.

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

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

Markets rebounded across the board in record time.

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



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

What We’re Reading (Week Ending 11 October 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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

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

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

Here are the articles for the week ending 18 October 2020:

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

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

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

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

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

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

2. The end of the American internet – Ben Evans

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

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

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

3. The Merits of Bottoms Up Investing – Venture Desktop

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.

What We’re Reading (Week Ending 04 October 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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

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

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

Here are the articles for the week ending 04 October 2020:

1. The Mike Speiser Incubation Playbook – Kwokchain

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

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

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

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

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

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

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

disrupting the fitness industry in the process…

… 6/ Peloton is born. Foley’s vision:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4. Negativity Is Not an Investment Strategy Ben Carlson

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

But guess what else involves risk — doing nothing!

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

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

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

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

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

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

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

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

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

6. Satya Nadella Rewrites Microsoft’s Code Harry McCracken

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

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

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

7. Common Causes of Very Bad Decisions – Morgan Housel

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

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

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


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

What We’re Reading (Week Ending 27 September 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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

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

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

Here are the articles for the week ending 27 September 2020:

1. Q&A With Li Lu – Longriver

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

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

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

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

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

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

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

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

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

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

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

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

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

4. A Few Rules Morgan Housel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

What We’re Reading (Week Ending 20 September 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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 20 September 2020:

1. The Metaverse: What It Is, Where to Find it, Who Will Build It, and Fortnite – Matthew Ball

The Metaverse, we think, will…

1. Be persistent – which is to say, it never “resets” or “pauses” or “ends”, it just continues indefinitely

2. Be synchronous and live – even though pre-scheduled and self-contained events will happen, just as they do in “real life”, the Metaverse will be a living experience that exists consistently for everyone and in real time

3. Have no real cap to concurrent participations with an individual sense of “presence” – everyone can be a part of the Metaverse and participate in a specific event/place/activity together, at the same time and with individual agency.

4. Be a fully functioning economy – individuals and businesses will be able to create, own, invest, sell, and be rewarded for an incredibly wide range of “work” that produces “value” that is recognized by others

5. Be an experience that spans both the digital and physical worlds, private and public networks/experiences, and open and closed platforms

6. Offer unprecedented interoperability of data, digital items/assets, content, and so on across each of these experiences – your “Counter-Strike” gun skin, for example, could also be used to decorate a gun in Fortnite, or be gifted to a friend on/through Facebook. Similarly, a car designed for Rocket League (or even for Porsche’s website) could be brought over to work in Roblox. Today, the digital world basically acts as though it were a mall where though every store used its own currency, required proprietary ID cards, had proprietary units of measurement for things like shoes or calories, and different dress codes, etc.

7. Be populated by “content” and “experiences” created and operated by an incredibly wide range of contributors, some of whom are independent individuals, while others might be informally organized groups or commercially-focused enterprises

2. Twitter thread from Okta CEO and co-founder Todd McKinnon on what it’s actually like to go through an initial public offering and be a public company – Todd McKinnon

How I benefited from @okta going public:
– My control of the company increased significantly.
– Preferred shares rights & preferences go away as everyone converts to common.
– My shares along with VC converted to super-voting shares. As VCs sold their shares, my voting % went up.

How my job has changed:
– More time in board meetings (committees, recruiting, communicating with, etc).
– More time on IR & with investors (earnings reports, conferences, 1on1s – might sound repetitive, but you often learn interesting & unexpected things).

For years, we’d compensated employees with stock options & we HAD to give them liquidity. It was fun to celebrate with the team on the big day.

3. Memo on Shopify by venture capital firm Bessemer Venture Partners when it invested in the company – Alex Ferrara, Trevor Oelschig

Shopify was founded in 2007 by two Ruby on Rails core developers. One of the co-founders left soon after starting the business. The other, Tobi Lütke, stayed on and is serving as CEO. We have been impressed by Tobi. He is a young, first-time CEO who is thoughtful, has good product and management instincts. Shopify’s 24 employees are located in Ottawa, Canada. Based on Shopify’s reputation in Ottawa as a local internet startup success story, and based upon Tobi’s reputation among the developer community, the company has been able to recruit some of the best development and design talent in Ottawa at 60%-70% of the cost of similar talent in Silicon Valley or New York.

4. Tencent’s Dreams, Part II: Investing in the Metaverse Packy McCormick

A strategic decision nine years ago accidentally set Tencent up to create more value from the Metaverse than it does from its entire core business by focusing on investment over organic growth.

After reading Part I, Rui Ma pointed me to the Tech Buzz China podcast in which she and Ying Lu discuss Pan Luan’s 2018 piece titled “Tencent Has No Dreams.” In it, he argues that a 2011 decision at a management team offsite caused Tencent to lose sight of its product-focused roots.

Back in 2011, Baidu passed Tencent as the most valuable tech company in China, and Pony Ma called a meeting of his top management to chart a new course for the company. In the meeting, dubbed “The Conference of the Gods,” he asked his 16 top executives to list out Tencent’s core competitive advantages. Two winners emerged: capital and traffic.

Led by President Martin Lau and his former Goldman colleague James Mitchell, who he brought on as Chief Strategy Officer, Tencent built its strategy on this flywheel of capital and traffic.

The strategy seems to be working. Since that 2011 meeting, Tencent’s stock has increased nearly 15x, from $44.5 billion to $660 billion. Attract companies to build on its platform with huge traffic, invest in the winners, give them more traffic, invest more or acquire the winners, generate more traffic, attract more companies, and so on. It runs essentially the same playbook with foreign companies who want access to China.

5. A $200 Billion Exotic Quant Trade Is Facing Existential Doubts – Justina Lee

ARP [alternative risk premia] products combine a diverse bunch of trades, often tried-and-tested ideas beloved by quants such as the tendency for cheap stocks to outperform in the long run or for short-term commodity futures to trade below long-term ones. The composition of funds and their returns vary vastly, but managers can point to a few unifying trends that have been a drag on performance in 2020.

The March turmoil upended the normal trading patterns these strategies rely on. Then the fast market recovery whipsawed trend-following systems and forced systematic models to dial back market exposures and miss out on gains.

At the same time, many popular factors used by these funds — such as value and foreign-exchange carry — failed to rebound along with stock benchmarks.

“The recovery depended on whether you were in those main long risk categories of liquid equities and fixed income,” said Anthony Lawler, head of GAM Systematic, which oversees about $3 billion. “ARP by and large are not in those things.”

Equity value has been a persistent drag on ARP portfolios

This year is adding to growing doubts over ARP, which has lagged stock indexes in recent years but has also posted a mixed performance as a portfolio diversifier. While defenders would argue that these products were never supposed to be a hedge against traditional assets, many investors likely got a different impression from their marketing, says MJ Hudson’s Suhonen.

6. Obvious Things That Are Easy To Ignore Morgan Housel

A thing that’s obvious but easily overlooked is that feeling wealthy has little to do with what you have. It’s more about the gap between what you have and what you expect. And what you expect is driven by what other people around you have.

It’s been like that forever and for everyone. John D. Rockefeller never had penicillin, sunscreen, or Advil. But you can’t say a low-income American with Advil and sunscreen should feel better off than Rockefeller, because that’s not how people’s heads work. What would have seemed like magic to Rockefeller became our baseline expectation.

Incomes fall into the same trap. Median family income adjusted for inflation was $29,000 in 1955. In 1965 it was $42,000. Today it’s just over $62,000. We think of the 1950s and 1960s as the golden age of middle-class prosperity. But the median household today has roughly twice the income as the median family of 1955. Part of the disconnect can be explained by lots of people’s expectations being inflated by the lifestyles of a small share of people whose wealth grew exponentially over the last 40 years.

7. Upside-Down Markets: Profits, Inflation and Equity Valuation in Fiscal Policy Regimes – Jesse Livermore

If households and corporations were to deficit spend in the way that the government deficit spends, they would eventually run up against liquidity and solvency constraints. But a sovereign government is not subject to those constraints. Through its central bank, it decides the interest rate at which it borrows. And it doesn’t even need to borrow—it can finance spending by printing new money. As long as there are economic participants willing to withhold the new money, and as long as the economy has the productive capacity to fulfill any additional spending that the withholding process might give rise to, economic problems such as inflation need not emerge.This insight, most notably attributable to the British economist Abba Lerner, is a core component of Modern Monetary Theory (MMT). As the insight becomes better understood in 

political circles, it will increasingly drive fiscal policies that seek to guarantee desired levels of income and spending growth in the economy, policies that have the potential to turn markets upside-down, for better or worse.


DisclaimerThe Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. We currently have vested interests in Facebook, Okta, Shopify and Tencent.

What We’re Reading (Week Ending 13 September 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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 September 2020:

1. The S-1 Club | Unity is Manifesting the Metaverse – MDA Gabriele

We’d be remiss if we didn’t discuss Unity’s role as a “founder” of the Metaverse, a term coined in Neal Stephenson’s Snow Crash, and further popularized by media analystMatthew Ball.

The Metaverse describes a state of interoperability across digital platforms in the virtual world. To date, virtual worlds have been built as walled gardens with their own laws of physics, currencies, and customs. The Metaverse connects walled gardens the way physical networking infrastructure connected internal networks nearly 50 years ago to create the Internet. The Metaverse also powers real-world interactions by enabling multiple people to experience the same event at once and collaborate in highly immersive environments. Fans of Ready Player One will recall the ragers held in The Oasis.

Where does Unity fit in such a world?

One perspective comes from Unity’s nemesis, Epic Games. As mentioned in Company History, Epic is the creator of the directly competitive Unreal engine. In a conversation with the LA Times, CEO Tim Sweeney described what the Metaverse will enable:

“Just as every company a few decades ago created a webpage, and then at some point every company created a Facebook page, I think we’re approaching the point where every company will have a real-time live 3D presence, through partnerships with game companies or through games like Fortnite and Minecraft and Roblox. That’s starting to happen now. It’s going to be a much bigger thing than these previous generational shifts. Not only will it be a boon for game developers, but it will be the beginning of tearing down the barriers not just between platforms but between games.”

If you ascribe to Sweeney’s view, then the upside for engines like Unity and Unreal is extraordinary. Rather than merely powering game development, Unity has the potential to serve as the foundational layer — the rails — of a new, shared synthetic reality.

2. Will Money Printing Cause Inflation? – Michael Batnick

If we’ve learned anything since the government’s response to the last crisis, it’s that quantitative easing or money printing or whatever you want to call it, does not necessarily plant the seeds for higher prices in the future. If you have any faith in how markets work, then look to our borrowing costs as a clue. If investors were really worried about the size of the federal deficit, than the costs for funding it wouldn’t be at a record low.

One of the reasons that people worry so much about the size of the deficit is because they think of the government like a household. But unlike a household, the government can create more money. Unlike a household the government can keep borrowing. And unlike a household, the bill never comes due.

3. WeChat and TikTok Taking China Censorship Global, Study Says – Jamie Tarabay

ByteDance Ltd.’s TikTok often buries or hides words that reflect political movements, gender and sexual orientation or religion in most countries where it operates, the Australian Strategic Policy Institute said in a report released Tuesday. Most of the content censored on WeChat supported pro-democracy activists in Hong Kong, as well as messages from the U.S. and U.K. embassies regarding a new national security law enacted by Beijing at the end of June that has provoked protests across the city.

TikTok, which began as a place where teens lip-sync to music, has become a forum for political protest including the Black Lives Matter movement, said Fergus Ryan, one of the authors. Hashtags related to LGBTQ+ issues were also suppressed in several languages, according to the report. Other topics censored in the past included criticism of Russian President Vladimir Putin.

4. Understanding Stakeholder Value: Where Do Profits Come From? Sean Stannard-Stockton

In our 2017 post PRICING POWER: DELIGHTING CUSTOMERS VS MORTGAGING YOUR MOAT, we explained how companies that seek to capture as much of the surplus value as possible for themselves and leave as little as possible in the hands of their customers, do not have nearly the opportunity to maximize long term shareholder profits as those companies that relentless try to increase consumer surplus.

A company that is “mortgaging its moat” as described in the post, is one that seeks to extract as much of the consumer surplus as possible from their customers and capture the value as profit for themselves. This is what a monopoly is all about. Monopoly conditions disconnect sellers from needing to worry about competition and allows them to set pricing at the level that wins the maximum amount of profits while minimizing consumer surplus. Under these conditions, there is some end point at which the company has extracted every dollar of consumer surplus for themselves and 1) they are unable to extract any more, while 2) consumers are willing to try any other even barely viable alternative just to attempt to exit the exploitative relationship they are in with the seller.

Conversely, a company that is “delighting customers” is one that, because they relentless drive up the value of their products and services by creating so much additional consumer surplus, gets no push back from consumers when they raise prices. Under these conditions, there is no theoretical limit to the amount of consumer surplus a company can create nor on the value they can capture as producer surplus (profits) via raising prices.

5. Reed Hastings Had Us All Staying Home Before We Had To – Maureen Dowd

Has the pandemic altered Mr. Hastings’s perception of the competition?

It’s the “sideways threats” that bite companies, he said. “If you think of Kodak and Fuji, competing in film for 100 years, but then ultimately it turns out to be Instagram.”

Speaking of which, I wondered if he thinks that Mark Zuckerberg, Sheryl Sandberg and Jack Dorsey have done enough as far as election meddling and disinformation threats?

“Every new technology has real issues that have to be thought through and, you know, we’re in that phase for social media,” he said, adding: “The car, many people think is a great invention for human freedom, but it also has killed a lot of people over time. Film got used by Hitler for terrible purposes.”

He continued: “So I find Mark and Sheryl to be sincere in trying to think these things through.”

6. Taming the Tail: Adventures in Improving AI Economics Martin Casado and Matt Bornstein

Many of the difficulties in building efficient AI companies happen when facing long-tailed distributions of data, which are well-documented in many natural and computational systems.

While formal definitions of the concept can be pretty dense, the intuition behind it is relatively simple: If you choose a data point from a long-tailed distribution at random, it’s very likely (for the purpose of this post, let’s say at least 50% and possibly much higher) to be in the tail.

Take the example of internet search terms. Popular keywords in the “head” and “middle” of the distribution (shown in blue below) account for less than 30% of all terms. The remaining 70% of keywords lie in the “tail,” seeing less than 100 searches per month. If you assume it takes the same amount of work to process a query regardless of where it sits in the distribution, then in a heavy-tailed system the majority of work will be in the tail – where the value per query is relatively low…

… The long tail – and the work it creates – turn out to be a major cause of the economic challenges of building AI businesses.

The most immediate impact is on the raw cost of data and compute resources. These costs are often far higher for ML than for traditional software, since so much data, so many experiments, and so many parameters are required to achieve accurate results. Anecdotally, development costs – and failure rates – for AI applications can be 3-5x higher than in typical software products.

However, a narrow focus on cloud costs misses two more pernicious potential impacts of the long tail. First, the long tail can contribute to high variable costs beyond infrastructure. If, for example, the questions sent to a chatbot vary greatly from customer to customer – i.e. a large fraction of the queries are in the tail – then building an accurate system will likely require substantial work per customer. Unfortunately, depending on the distribution of the solution space, this work and the associated COGS (cost of goods sold) may be hard to engineer away.

Even worse, AI businesses working on long-tailed problems can actually show diseconomies of scale – meaning the economics get worse over time relative to competitors. Data has a cost to collect, process, and maintain. While this cost tends to decrease over time relative to data volume, the marginal benefit of additional data points declines much faster. In fact, this relationship appears to be exponential – at some point, developers may need 10x more data to achieve a 2x subjective improvement. While it’s tempting to wish for an AI analog to Moore’s Law that will dramatically improve processing performance and drive down costs, that doesn’t seem to be taking place (algorithmic improvements notwithstanding).

7. Airbnb’s resurgence – Felix Salmon

Estimates from Edison Trends show Marriott and other hotel chains seeing much lower spending than at this time last year. At Airbnb, by contrast, spending is hitting new all-time highs.

Airbnb spending is running a whopping 75% higher than this time [September 2020] last year, says the research shop, based on a panel of spending data including more than 65,000 Airbnb transactions.

That means Airbnb’s revenues have comfortably surpassed Marriott’s, for the first time.


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.

What We’re Reading (Week Ending 06 September 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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 September 2020:

1. Modern Monetary Theory Finds an Embrace in an Unexpected Place: Wall Street – Patricia Cohen

Besides the risk of government deficits, M.M.T. throws out a drawerful of other venerable assumptions with Marie Kondo-esque ruthlessness. To start, it instructs you to erase that textbook drawing of a white-haired Uncle Sam collecting tax dollars from the public and then using them to pay for military weapons, highway repairs, federal workers’ wages and more.

Tax revenues are not what finance the government’s expenditures, argues Stephanie Kelton, an economist at Stony Brook University and one of the most influential modern monetary theorists. What actually happens in a country that controls its own currency, she says, is that the government first decides what it’s going to spend. In the United States, Congress agrees on a budget. Then government agencies start handing out dollars to the public to pay for those tanks, earth movers and salaries. Afterward, it takes a portion back in the form of taxes. If the government takes back less than it gave out, there will be a deficit.

“The national debt is nothing more than a historical record of all of the dollars that were spent into the economy and not taxed back, and are currently being saved in the form of Treasury securities,” Ms. Kelton said.

Ms. Kelton, a frequent speaker at business and financial conferences and the chief economic adviser to Mr. Sanders during his 2016 presidential campaign, points out that every dollar the government spends translates into a dollar of income for someone else. So a deficit in the public sector simultaneously produces a surplus outside the government.

The reverse is also true, Ms. Kelton maintains, and that can lead to trouble. The seven biggest American depressions or downturns going back 200 years, she said, were all preceded by government surpluses.

2. Save Like A Pessimist, Invest Like An Optimist – Morgan Housel

A 100-year event doesn’t mean it happens every 100 years. It means there’s about a 1% chance of it occurring in any given year. That seems low. But when there are hundreds of different independent 100-year events, what are the odds that any one of them will occur in a given year?

Pretty good, in fact.

If next year there’s a 1% chance of a new disastrous pandemic, a 1% chance of a crippling depression, a 1% chance of a catastrophic flood, a 1% chance of political collapse, and on and on, then the odds that something bad will happen next year – or any year – are … uncomfortably high.

Littlewood’s Law tells us to expect a miracle every month. The flip side is to expect a disaster roughly as often.

Which is what history tells us, isn’t it?

3. No, Robinhood Traders Aren’t Affecting the Stock Market – Nick Maggiulli

When combining the holdings data with pricing data from Yahoo Finance, I was able to look at the one-day change in number of Robinhood users holding a stock and see how well it correlated with the one-day price return of that stock.

I did this because I wanted to test whether an increase (or decrease) in Robinhood users holding a stock was met with a similar increase (or decrease) in that stock’s price. I understand that the number of Robinhood users holding a stock is not the same as the total dollar impact that Robinhood users have on a stock (that is, not all Robinhood traders have the same bankroll), but let’s assume that they are similar in size for now. Additionally, I created a subset of the data to start on February 19 (the day before the Covid-19-inspired sell-off began) to only capture the correlation from when Robinhood users started becoming more active on the platform.

After doing this exercise for the top 200 most popular stocks on Robintrack, I found that for most of these stocks, there was little to no correlation between the one-day change in stock price and the one-day change in the number of Robinhood users holding them:

4. The 2 Variables That Drive Stock Prices Ben Carlson

If investing was a cocktail, it would essentially boil down to one part fundamentals and one part emotions. Fundamentals are easier than ever to capture because we now have access to more data in a single day than our ancestors would see in a lifetime.

The emotional component of investing will never be quantifiable because it’s impossible to predict how people will feel in the future.

The late Jack Bogle introduced this concept in his book Don’t Count On It by breaking down expected annual returns of the U.S. stock market into the following components:

Market Returns = Dividend Yield + Earnings Growth +/- Changes in the P/E Ratio

Dividends and earnings are the fundamental portion of stock market returns while the change in the price-to-earnings (P/E) ratio is the speculative portion of returns. The change in P/E represents how much people are willing to pay for corporate fundamentals and the reason it’s considered speculative is because it can vary widely over time.

5. Warren Buffett’s Japan Bet, Warren Buffett’s Gold Bet, etc – Joshua Brown

Warren Buffett is an investor who looks to buy future growth at reasonable valuations today. He prioritizes long-term cashflow generation, management quality, competitive position and return on capital when he buys a stock. He’s got two well-known investment lieutenants helping him make decisions, and they are also empowered with enough autonomy to make decisions of their own.

One thing you will not find throughout the annals of Berkshire Hathaway’s history is a lot of “thematic” investing. Buffett doesn’t do “themes.” He would not have been a big user of Motif Investments. He doesn’t use his stock purchases to tell a story about his macro forecasts. He may discuss his stock purchases in a broader sense (Buy American, I Am) to convey an opinion about the present market situation and where he’s finding value, but he doesn’t make an investment in order to express himself or signal something.

He makes investments in order to earn a profit. Not in order to tell you a story and put you to bed.

6. ‘I Can’t Believe I’m Saying This, But I’m Passing on Seth Klarman’ Leanna Orr

Klarman’s firm runs one wide-open strategy, or product, via ten Baupost Value funds operating in parallel but raised at different times. When the firm invested in insurance claims against bankrupt utility Pacific Gas and Electric, for example, investors got equitable exposure across the various vehicles. The vintage-year structure resembles private equity funds; the deal sharing does not. Hedge funds typically divide their funds by strategy: one long-short equity, another long-only, one focused on China, etc.

Baupost prefers carte blanche.

Investing with the firm means allowing Klarman’s team to do mostly whatever it wants with the money. Since the financial crisis, that’s often meant buying private assets, such as real estate, that linger for a long time in portfolio. “I’m not a fan of people in the hedge fund world taking what would be a five- to seven year real estate strategy,” the head of an elite institution gripes. “That’s not what a hedge fund is.” Klarman, observers say, has been doing more and more of these types of deals — and returning less and less. Baupost has delivered double-digit gains just once since 2010, II previously reported. “The return-on-equity numbers don’t stand up to top-tier private equity,” according to the allocator who opted out. “I would prefer to just be in private equity that says what it is. At least then it’s a defined approach.”

The most controversial thing that Baupost does with its wide-open investment mandate is nothing at all. Cash amounts to about one third of the portfolio on average, or about $10 billion. “The last thing you want to do is pay a manager to hold a lot of cash,” says one hedge fund specialist. Baupost charges clients 1.25 percent in management fees, regardless of performance or what the money is invested in. Charities, schools, and other clients pay Baupost upwards of $120 million for one year of cash management, given an average holding. Allocators really don’t like that — or at least they really like to complain about it.

7. The Potentially Revolutionary Celera 500L Aircraft Officially Breaks Cover – Joseph Trevithick & Tyler Rogoway

Otto Aviation says the Celera 500L had a maximum cruising speed of at least 450 miles per hour and a range of over 4,500 miles. It also has impressive fuel economy, achieving 18 and 25 miles per gallon, according to Otto Aviation. A traditional business jet with similar capabilities to the Celera 500L, including its six-passenger capacity, typically burn a gallon of fuel for every two to three miles of flight, making Otto’s design dramatically more economical, as well as more environmentally friendly. The company says that the Celera 500L will have an unbelievably low per-hour flight cost of just $328.

This and aircraft’s other notable performance characteristics are made possible in large part due to its highly aerodynamic overall laminar flow shape, which produces approximately 59 percent less drag than existing similar-sized, more conventionally-shaped aircraft. Its high-efficiency Raikhlin Aircraft Engine Developments (RED) A03 V12 piston engine is another important part of the equation. The A03 has a multi-stage turbocharger and can run on Jet A1 fuel, as well as kerosene or biodiesel.

Germany-based RED touts the engine as a very high-efficiency design with low fuel consumption and very good reliability over existing piston engine designs with equivalent horsepower ratings. “The Celera 500L’s aerodynamic airframe requires significantly less horsepower to achieve take-off and cruise speeds, allowing for a more fuel-efficient power plant [the A03] to be utilized,” Otto’s website says.


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. 

What We’re Reading (Week Ending 30 August 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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 August 2020:

1. Matt Ball – The Future of Media: Movies, the Metaverse, and More – Patrick O’Shaughnessy and Matthew Ball

Certainly I think under COVID, this topic of the metaverse has certainly accelerated and there were a lot of conflations. I think a lot of people think of the metaverse as virtual worlds, those certainly have existed for decades. They think of it as UGC content creation platform, such as Minecraft, that’s basically an interactive or immersive version of a YouTube. Others think about this from an avatar perspective. You have a virtual version of you that exists somewhere else that you have control of.

All of those are interesting elements, even AR glasses come into the conversation about the metaverse. But if you’re talking about the metaverse, that’s basically like saying Google is the internet, or iPhone is the internet, or the Yahoo directory was the internet. It’s not entirely wrong. It’s certainly an important element of the consumer experience of it or what they might describe it, but it completely misses the idea that the internet itself is a series of tubes in the ground, standards, protocols, technology, and ideas that were formalized into infrastructure

2. Risk Is Never as Simple as It Seems – Ben Carlson

There are plenty of examples like this where safety measures can offer a false sense of security, thus introducing additional risks to the equation.

A study in Norway found new cars, despite having better safety measures and more advanced technology, get into more crashes than old cars. And this takes into account the fact that there are more new cars on the road. The probability of damage and injury is higher when driving a new car because people feel safer driving them and also use them more often.

Safety measures in the world of finance are sure to have unintended consequences as well.

The financial models many banks used gave them a false sense of security leading up to the Great Financial Crisis. Garbage-in, garbage out is the same for financial models as it is for your sink.

The measures enacted during the current crisis, as necessary as they may have been, are sure to change the way investors view risk in the years ahead.

3. A Robot Tried to Fix Value Investing and Ended Up Buying Amazon – Justina Lee

The strategy of buying stocks that appear cheap relative to their fundamentals has been struggling for more than a decade, but a South Korean money manager reckons its AI-augmented exchange-traded fund is the answer.

Qraft Technologies filed on Friday to create the Qraft AI-Enhanced U.S. Next Value ETF, ticker NVQ. It says this strategy can revive the factor by estimating a firm’s intangible assets based on financial statements and patent databases…

… The top three holdings of the machine-guided fund in July were Amazon.com Inc., Alphabet Inc. and Facebook Inc. Those are far from the kind of undervalued stocks typically favored by a value strategy. But to Qraft, it’s just value 2.0.

“Intangible assets have become a more important factor in the actual value of the company due to the development of information technology,” founder Hyungsik Kim wrote in an email. “It is easy to tell which of the following is more important in measuring the value of Amazon: warehouses (tangibles) or automated logistics systems (intangibles).”

It’s the rallying cry for many remaining proponents of value: The factor isn’t dead, it’s simply plagued by outdated accounting rules that treat intangible investments such as research as expenses rather than capital.

As a result, knowledge-intensive firms end up with much lower book values and higher costs, which make them look more expensive than they actually are.

4. Tweetstorm on how an onion farmer in the USA managed to corner the market for onions Sahil Bloom

1/ Vince Kosuga fancied himself as more than just your average onion farmer. He had a productive 5,000-acre onion farm in Pine Island, NY. But it was his side hustle, trading in futures markets, that would make him (in)famous.

2/ Futures markets offered a way for farmers to hedge their risk. They could execute a contract to sell their crop at a fixed price at a later date, removing the risk of price fluctuations. But Vince was more interested in using futures for speculation. He wanted to get rich!

3/ After some unsuccessful episodes trading in wheat futures, Vince Kosuga had a (seemingly obvious) revelation. He knew all there was to know about onions, so he should be trading in onions! He would pull off the greatest onion trade of all time.

4/ The idea was simple. He would corner the entire US market for onions. Executing against it was not. To pull it off, he would need to own the vast majority of all harvested or in-ground onions in the country. But Vince thought big. He and his partners began buying onions.

5/ They built secret warehouses across the country, buying and storing millions of onions. But this only covered harvested onions, which was just one piece of the market. So they began buying up futures contracts, essentially taking ownership of all future US onion harvests.

6/ By the fall of 1955, Vince Kosuga had a stranglehold on the entire market for onions in the United States. Most importantly, no one knew it. With this control, Vince Kosuga could move onion prices as he pleased. Now, it was time to get rich.

5. Alternative Forms of Wealth – Morgan Housel

You have a level of independence that goes beyond money. You can cook for yourself, do your own laundry, change a flat tire, and be alone without getting bored…

… You have emotional stability, accepting reality without it driving you crazy.

You can lead a productive conversation with a stranger from any background.

You don’t have to pretend to look busy to justify your salary.

You have enough time to prioritize eight hours of sleep with stress levels low enough to allow sleep.

You can say, “I have no idea” when you have no idea.

6. Test results in hand, Thrive raises $257M to push liquid biopsy toward approval Jason Mast

Thrive started raising for the Series B immediately after the study results were published in Science at the end of April. That study, run across 10,000 women at the Geisinger Health System, showed for the first time that a blood test could help doctors diagnose certain types of cancer in patients who did not yet show symptoms, more than doubling the percentage of cancers that were detected.

“We wanted that data in hand as a big catalyst to drive the process,” Thrive CFO Isaac Ro told Endpoints.

7. Could Roger Federer be as successful playing badminton? – Martin Hirt

In late January, Roger Federer won his sixth Australian Open title. His tally of Grand Slam championships now numbers 20—an incredible feat. As tennis’s biggest star, he is well compensated for his efforts: Forbes magazine estimates that he took home $64 million last year.

Why does Federer make so much money? The answer, most would say, is clear: talent, hard work, good looks, business acumen.

But what if Federer played badminton? He would face Lin Dan, the champion in that sport. Each man may be the best ever in his respective game, and both are extremely marketable, with competitive instincts and personal charm. But Dan doesn’t make anywhere near what Federer does—and he never will. That’s because Dan has an “industry” disadvantage. A Top 10 tennis player makes 10 to 20 times what a Top 10 player in any other racket sport earns…

… The role of industry in a company’s position is so substantial that you’d rather be an average company in a great industry than a great company in an average industry. The median pharmaceutical company (India-based Sun Pharmaceuticals), the median software company (Adobe Systems), and the median semiconductor company (Marvell Technology Group) all would be in the top quintile of chemicals companies and the top 10% of food products companies.

In some cases, you’d rather be in your supplier’s industry than in your own. For example, the average economic profit of airlines is a loss of $99 million, while suppliers in the aerospace and defense category average a profit of $453 million. In fact, the 20th percentile aerospace and defense supplier, Saab AB, earns more economic profit than the 80th percentile airline, Air New Zealand. That is not to say that all airlines have poor economic performance (witness Japan Airlines), nor that all is rosy in aerospace and defense. But it is a fact of life that there are more and less attractive playing fields.


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

What We’re Reading (Week Ending 23 August 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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

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

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

Here are the articles for the week ending 23 August 2020:

1. 10 years ago – Joshua Brown

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

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

I made the bet.

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

2. When The Magic Happens – Morgan Housel

The 1930s were a disaster.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. Tencent: The Ultimate Outsider – Packy McCormick

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

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

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

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

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

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

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

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

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

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

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

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


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

What We’re Reading (Week Ending 16 August 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

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

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

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

Here are the articles for the week ending 16 August 2020:

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

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

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

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

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

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

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

Questions to consider when evaluating developer mindshare:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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