Category: What We’re Reading

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 28 March 2021:

1. Elevate Our Minds – Kazuo Inamori

I can’t observe nature, the formation of matter in the universe, the birth of life or the process of evolution and not see a destiny that is more than coincidental.

The world seems to have a “flow” that evolves and develops everything. I call this “the will of the universe.” This will is filled with love, sincerity and harmony. Our personal destiny depends on whether or not the energy emitted by our mind is in harmony with the universal will.

Fortune smiles upon us when we make a wish with a pure mind that is in harmony with this universal will.

Our attitude and heart play a decisive role in achieving wonderful results in our life and work.

A loving, sincere and harmonious heart leads to success. Such a heart is a natural part of our spiritual selves. “Love” rejoices in other people’s happiness as if it were our own. “Sincerity” is a mindset that seeks good for the sake of society and others. “Harmony” compels us to always wish for happiness, not just for ourselves, but for everyone around us.

A loving, affectionate, sincere and harmonious heart is the foundation that leads a person to success.

Wonderful success can come only from the designs of a pure mind. No matter how strong our desires may be, if they are generated from our selfishness, success cannot be sustained.

The stronger an irrational desire is, the more it will conflict with society and the more catastrophic its results will be.

To sustain success, our desire and enthusiasm must be pure. In other words, you must make sure that your desire is pure before you make it permeate your subconscious mind. And, only continuous efforts stemming from pure hearts will enable us to realize our goals.

2. Unlocking the Covid Code – Jon Gertner

In the sphere of public health, one of the first big breakthroughs enabled by faster genomic sequencing came in 2014, when a team at the Broad Institute of M.I.T. and Harvard began sequencing samples of the Ebola virus from infected victims during an outbreak in Africa. The work showed that, by contrasting genetic codes, hidden pathways of transmission could be identified and interrupted, with the potential for slowing (or even stopping) the spread of infection. It was one of the first real-world uses of what has come to be called genetic surveillance. A few years later, doctors toting portable genomic sequencers began tracking the Zika virus around Central and South America. Sequencers were getting better, faster and easier to use.

To many, the most familiar faces of this technology are clinical testing companies, which use sequencing machines to read portions of our genetic code (known as “panels” or “exomes”) to investigate a few crucial genes, like those linked to a higher risk of breast cancer. But more profound promises of genome sequencing have been accumulating stealthily in recent years, in fields from personal health to cultural anthropology to environmental monitoring. Crispr, a technology reliant on sequencing, gives scientists the potential to repair disease-causing mutations in our genomes. “Liquid biopsies,” in which a small amount of blood is analyzed for DNA markers, offer the prospect of cancer diagnoses long before symptoms appear. The Harvard geneticist George Church told me that one day sensors might “sip the air” so that a genomic app on our phones can tell us if there’s a pathogen lurking in a room. Sequencing might even make it possible to store any kind of data we might want in DNA — such an archival system would, in theory, be so efficient and dense as to be able to hold the entire contents of the internet in a pillowcase…

…As machines improved, the impact was felt mainly in university labs, which had relied on a process called Sanger sequencing, developed in the mid-1970s by the Nobel laureate Frederick Sanger. This laborious technique, which involved running DNA samples through baths of electrically charged gels, was what the scientists at Oxford had depended upon in the mid-1990s; it was also what Dave O’Connor, a virologist at the University of Wisconsin, Madison, was using in the early 2000s, as he and his lab partner, Tom Friedrich, tracked virus mutations. “The H.I.V. genome has about 10,000 letters,” O’Connor told me, which makes it simpler than the human genome (at three billion letters) or the SARS-CoV-2 genome (at about 30,000). “In an H.I.V. genome, when we first started doing it, we would be able to look at a couple hundred letters at a time.” But O’Connor says his work changed with the advent of new sequencing machines. By around 2010, he and Friedrich could decode 500,000 letters in a day. A few years later, it was five million.

By 2015, the pace of improvement was breathtaking. “When I was a postdoctoral fellow, I actually worked in Fred Sanger’s lab,” Tom Maniatis, the head of the New York Genome Center, told me. “I had to sequence a piece of DNA that was about 35 base pairs, and it took me a year to do that. And now, you can do a genome, with three billion base pairs, overnight.” Also astounding was the decrease in cost. Illumina achieved the $1,000 genome in 2014. Last summer, the company announced that its NovaSeq 6000 could sequence a whole human genome for $600; at the time, deSouza, Illumina’s chief executive, told me that his company’s path to a $100 genome would not entail a breakthrough, just incremental technical improvements. “At this point, there’s no miracle that’s required,” he said. Several of Illumina’s competitors — including BGI, a Chinese genomics company — have indicated that they will also soon achieve a $100 genome. Those in the industry whom I spoke with predicted that it may be only a year or two away.

These numbers don’t fully explain what faster speeds and affordability might portend. But in health care, the prospect of a cheap whole-genome test, perhaps from birth, suggests a significant step closer to the realization of personalized medicines and lifestyle plans, tailored to our genetic strengths and vulnerabilities. “When that happens, that’s probably going to be the most powerful and valuable clinical test you could have, because it’s a lifetime record,” Maniatis told me. Your complete genome doesn’t change over the course of your life, so it needs to be sequenced only once. And Maniatis imagines that as new information is accumulated through clinical studies, your physician, armed with new research results, could revisit your genome and discover, say, when you’re 35 that you have a mutation that’s going be a problem when you’re 50. “Really, that is not science fiction,” he says. “That is, I’m personally certain, going to happen.”

3. Outgrowing Software – Ben Evans

Walmart was built on trucking and freeways (and computers), but Walmart is a retailer, not a trucking company: it used trucks to change retail. Now people do the same with software.

But it’s also interesting to look at the specific industries that have already been destabilised by software, and at what happened next. The first one, pretty obviously, was recorded music. Tech had a huge effect on the music business, but no-one in tech today spends much time thinking about it. 15 and 20 years ago music was a way to sell devices and to keep people in an ecosystem, but streaming subscription services mean music no longer has much strategic leverage – you don’t lose a music library if you switch from iPhone to Android, or even from Spotify to Apple Music. Meanwhile, the absolute size of the market is tiny relative to what tech has become – total recorded music industry revenues were less than $20bn last year (half the peak in 2000), where Apple’s were $215bn. No-one cares about music anymore.

Something similar happened in books. Amazon has half the market, ebooks became a real business (though they remain a niche), and self-publishing has become a new vertical, but I suspect Apple wouldn’t bother to do ebooks again if it had the choice. Just as for music, there’s no strategic leverage, and total US book market revenues last year were perhaps $25bn, where Amazon’s US revenue was $260bn. No-one in tech cares about online book sales or ebooks.

More fundamentally, though, for both music and books, most of the arguments and questions are music industry questions and book industry questions, not tech or software questions. Spotify is suing Apple over the App Store commission rules, but otherwise, all the Spotify questions are music questions. Why don’t artists make more from streaming? Ask the labels. Why didn’t the internet kill labels or publishers? Ask music people and book people.

4. Inside Facebook Reality Labs: Wrist-based interaction for the next computing platform – Facebook

The future of HCI [human-computer interaction] demands an exceptionally easy-to-use, reliable, and private interface that lets us remain completely present in the real world at all times. That interface will require many innovations in order to become the primary way we interact with the digital world. Two of the most critical elements are contextually-aware AI that understands your commands and actions as well as the context and environment around you, and technology to let you communicate with the system effortlessly — an approach we call ultra-low-friction input. The AI will make deep inferences about what information you might need or things you might want to do in various contexts, based on an understanding of you and your surroundings, and will present you with a tailored set of choices. The input will make selecting a choice effortless — using it will be as easy  as clicking a virtual, always-available button through a slight movement of your finger.

But this system is many years off. So today, we’re taking a closer look at a version that may be possible much sooner: wrist-based input combined with usable but limited contextualized AI, which dynamically adapts to you and your environment.

We started imagining the ideal input device for AR glasses six years ago when FRL Research (then Oculus Research) was founded. Our north star was to develop ubiquitous input technology — something that anybody could use in all kinds of situations encountered throughout the course of the day. First and foremost, the system needed to be built responsibly with privacy, security, and safety in mind from the ground up, giving people meaningful ways to personalize and control their AR experience. The interface would also need to be intuitive, always available, unobtrusive, and easy to use. Ideally, it would also support rich, high-bandwidth control that works well for everything from manipulating a virtual object to editing an electronic document. On top of all of this, it would need a form factor comfortable enough to wear all day and energy-efficient enough to keep going just as long.

That’s a long list of requirements. As we examined the possibilities, two things became clear: The first was that nothing that existed at the time came close to meeting all those criteria. The other was that any solution that eventually emerged would have to be worn on the wrist.

Why the wrist? There are many other input sources available, all of them useful. Voice is intuitive, but not private enough for the public sphere or reliable enough due to background noise. A separate device you could store in your pocket like a phone or a game controller adds a layer of friction between you and your environment. As we explored the possibilities, placing an input device at the wrist became the clear answer: The wrist is a traditional place to wear a watch, meaning it could reasonably fit into everyday life and social contexts. It’s a comfortable location for all-day wear. It’s located right next to the primary instruments you use to interact with the world — your hands. This proximity would allow us to bring the rich control capabilities of your hands into AR, enabling intuitive, powerful, and satisfying interaction.

A wrist-based wearable has the additional benefit of easily serving as a platform for compute, battery, and antennas while supporting a broad array of sensors. The missing piece was finding a clear path to rich input, and a potentially ideal solution was EMG.

EMG — electromyography — uses sensors to translate electrical motor nerve signals that travel through the wrist to the hand into digital commands that you can use to control the functions of a device. These signals let you communicate crisp one-bit commands to your device, a degree of control that’s highly personalizable and adaptable to many situations.

The signals through the wrist are so clear that EMG can understand finger motion of just a millimeter. That means input can be effortless. Ultimately, it may even be possible to sense just the intention to move a finger. 

“What we’re trying to do with neural interfaces is to let you control the machine directly, using the output of the peripheral nervous system — specifically the nerves outside the brain that animate your hand and finger muscles,” says FRL Director of Neuromotor Interfaces Thomas Reardon, who joined the FRL team when Facebook acquired CTRL-labs in 2019.

This is not akin to mind reading. Think of it like this: You take many photos and choose to share only some of them. Similarly, you have many thoughts and you choose to act on only some of them. When that happens, your brain sends signals to your hands and fingers telling them to move in specific ways in order to perform actions like typing and swiping. This is about decoding those signals at the wrist — the actions you’ve already decided to perform — and translating them into digital commands for your device. It’s a much faster way to act on the instructions that you already send to your device when you tap to select a song on your phone, click a mouse, or type on a keyboard today.

5. Completing The God Protocols: A Comprehensive Overview of Chainlink in 2021 – SmartContent

In 1997, computer scientist Nick Szabo described what he termed the “God Protocols.” In short, the God Protocols refer to the general idea of a set of computer protocols that could arbitrate and facilitate processes involving an exchange of value between two or more independent parties without any bias, error, or privacy concerns. This perfect third party would be equally accessible to all participants, fairly and flawlessly execute actions according to mutually pre-agreed upon rules and commands, and wouldn’t leak sensitive information to unintended entities.

When extrapolated out to multi-party contracts, the God Protocols are designed to eliminate inefficiencies and counterparty risk by replacing human-based arbitrators/executors with math-based arbitrators/executors, resulting in the correct party consistently getting what they are owed, when they are owed, and from whom they are owed, based entirely on a provably objective interpretation of the events in which the contract is written about. Additionally, the Gods Protocols would extract as little value as possible from the process, only receiving what is needed to cover the costs of performing it…

…The third component to the God protocols is for smart contracts to become aware of events and interact with systems existing outside the native blockchain they run on. External connectivity entails two functions: 1) consuming data originating outside the blockchain and 2) passing instructional commands to external systems for them to perform (e.g., execute a payment on PayPal).

Blockchains are inherently closed and deterministic systems, meaning they have no built-in capabilities to talk to and exchange data between external systems (as doing so could break network consensus). While this generates the valuable security and reliability properties that users seek when using a blockchain, it also severely limits the types of data inputs that smart contracts can ingest and the types of output actions they can trigger on external systems. Most valuable datasets like financial asset prices, weather conditions, sports scores, and IoT sensors, as well as the currently preferred fiat settlement methods like credit cards and bank wires, exist outside the blockchain (off-chain). Given the importance of these resources to real-world business processes, blockchains need a secure bridge to the outside world in order to support a vast majority of smart contract application use cases.

Providing smart contracts connection to the outside world requires an additional piece of infrastructure known as an oracle. An oracle is an external entity that operates on behalf of a smart contract by performing actions not possible or practical by the blockchain itself. This usually involves retrieving and delivering off-chain data to the smart contract to trigger its execution or passing data from the smart contract to an external system to trigger an off-chain event. It can also involve various types of off-chain computations in advanced oracle networks (discussed more below), such as aggregating data from multiple sources or generating a provably fair source of randomness.

Similar to blockchains, the oracle mechanism cannot be operated by a single entity, as that would give the centralized oracle sole control over the inputs the contract consumes, thus control over the outputs it produces. Even if the blockchain is highly secure and the smart contract logic is perfectly written, the oracle will put at risk the entire value proposition of the smart contract if it is not built to the same security and reliability standards as the underlying blockchain network, often referred to as the oracle problem. Why have a blockchain network of thousands of nodes when it’s triggered by a single entity?

6. What If Interest Rates Don’t Matter as Much as We Think? – Ben Carlson

It’s obvious the Fed is propping up risk assets, right?

Well investors in the 1960s, 1970s and 1990s were more than happy to take speculation to another level with rates much much higher than they’ve been since 2008.

The same is true of the housing market…

…Interest rates do matter. They provide a hurdle rate, discount rate, benchmark, alternative to risk assets, however you want to look at it.

But they aren’t the be-all, end-all to the markets some would have you believe.

There are so many other factors at play that determine why investors do what they do with their money — demographics, demand, risk appetite, past experiences and a whole host of psychological and market-related dynamics.

Interest rates don’t turn people into gamblers.

They don’t force investors into lottery-ticket traders looking to get rich overnight.

Humans are just fine doing that on their own, regardless of interest rate levels.

Could there be a psychological impact if rates rise from here or fall from here or go nowhere for years on end?

Of course!

7. Five Investing Powers – Morgan Housel

Low susceptibility to FOMO. But for a different reason than you might think. The urge to buy an investment because its price went up means you probably don’t know why the price has gone up. And if you don’t know why the price has gone up you’re more likely to bail when it goes down. Most good investing is just sticking around for the longest time possible, through thick and thin. Quash the need to own whatever is going up the most and you reduce the urge to abandon whatever eventually goes down. Someone will always be getting richer than you. It’s OK.

Knowing what game you’re playing. An idea that’s obvious but overlooked is that investors on the same field play different games. We buy the same companies, read the same news, talk to the same people, are quoted the same market prices – but we’re everything from day traders to endowments with century-long time horizons. Even investors who think they’re playing the same game – say, stock pickers – have wildly different goals and risk tolerances. My view is that most investing debates do not reflect genuine disagreement; they reflect investors playing different games talking over each other, upset that people who don’t want what you want can’t see what you see. Understanding your game, without being swayed by people playing different games, is a rare investing power.

Recognizing the difference between patience and stubbornness. Two things are true: 1) every asset goes through temporary out-of-favor periods, and 2) the world changes, and some things fall permanently out of favor. Industries go through normal cycles, then they die. Investing strategies work for decades, then they stop. Realizing that patience plays the most important role in investing, but it shouldn’t be used blindly in every situation, is so hard. Dealing with it requires a combination of conviction and flexibility that can feel like a contradiction. The trick – and that’s the right word – is realizing that some behaviors never change but the composition of the economy always does. Having a few immutable beliefs but even more that you’re willing to abandon is a rare investing power.

---

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

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

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

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

Here are the articles for the week ending 21 March 2021:

1. Reverse Wealth Transfer on Steroids – Josh Brown

Do not buy SPACs, digital currencies or non fungible tokens sold to you by millionaires and billionaires with your stimulus check.

This is the exact opposite of what’s intended for young people like yourself receiving stimulus checks from the government. These checks are meant to improve your current situation by giving you a chance to purchase things that you need today or pay your bills or pay down debt. Speculating in digital assets is not part of the intent. Buying an online baseball card is not helping you, even if it goes up in price immediately after your having bought it…

…Trillionaires have the right to create any kind of nonsense they want and offer it up for sale. You have the right to come to your senses and say, “You know what, I don’t actually need that shit, I need a job. I need a nice new suit to go on interviews with. I need to fix my car. I need to upgrade my apartment so I can bring a date home and not be embarrassed about my situation.”…

…Take the $1400 and do one of these things:

Buy a business suit, some nice shirts and a pair of shoes. Laugh all you want, but these will be tools you can use to get into the right rooms and meet the right people. I promise you this is true: When you’re well dressed, people treat you differently. With respect. With honor. They hold doors for you and make eye contact with you. They can tell you hold yourself in high esteem and this subconsciously encourages them to hold you in high esteem as well. You can scoff at this and call it materialistic or bourgeois or anachronistic or whatever other big bad words you learned in college, but what I am telling you is the truth. If you had invented Facebook, you would have invented Facebook. But you didn’t. So the hoodie isn’t going to work. Watch how people deal with you when your shirt is tucked in and your shoes are shined.

Buy a bicycle. Set a routine. Breathe fresh air. See the sun. Feel the breeze. Smell the roses. You can listen to your podcasts while getting some exercise and being a human being. Every hour you spend with your eyes off the screens is an hour better spent. You will know I am right because you will feel it in your soul.

Buy a cookbook and some high quality pots and pans. Maintaining a grown-up kitchen with nice implements and utensils, as well as obtaining the ability to make quality meals for yourself or others will bring you the kind of psychic income that speculating in someone else’s shitty art projects can never replace.

2. Ray Dalio & The Power of Setting Defaults For Optimism – Ben Carlson

Optimism pays when it comes to investing because, most of the time, markets go up. The stock market is up roughly 3 out of every 4 years, on average. Over the long-term, optimism as a strategy is nearly impossible to beat. This is why buy and hold is perhaps the greatest strategy ever invented.

Unfortunately, there are always good reasons to be worried. The future is always uncertain. There is always bad news and we hear about that bad news more than any generation in history in the information age.

And there is something about finance people that makes them worry more about the downside than the upside. It’s like the exact opposite of people in Silicon Valley who are almost unanimously optimistic about the future.

Ray Dalio may be right to worry about the future. But he has a long track record of worrying about the future that hasn’t really panned out that well.

Dalio penned a piece for Institutional Investor about the importance of knowing when you’re wrong and changing your mind. He used his own prediction of a depression in the early-1980s as an example:

The biggest of these mistakes occurred in 1981–’82, when I became convinced that the U.S. economy was about to fall into a depression. My research had led me to believe that, with the Federal Reserve’s tight money policy and lots of debt outstanding, there would be a global wave of debt defaults, and if the Fed tried to handle it by printing money, inflation would accelerate. I was so certain that a depression was coming that I proclaimed it in newspaper columns, on TV, even in testimony to Congress. When Mexico defaulted on its debt in August 1982, I was sure I was right. Boy, was I wrong. What I’d considered improbable was exactly what happened: Fed chairman Paul Volcker’s move to lower interest rates and make money and credit available helped jump-start a bull market in stocks and the U.S. economy’s greatest ever noninflationary growth period.

Of course, there was no depression. Instead, the early-1980s kicked off one of the longest expansions in market and economic history.

That history bled into the 1990s as well. It may not seem like it when you look back at high double-digit returns from 1980-1999 but the nirvana-like economic and market environment in the 1990s was not a foregone conclusion at the outset of the decade.

In a piece from the New York Magazine in 1992, Dalio was quoted saying bonds were a better bet than stocks over the course of the 1990s:

Over the long term, both Dalio and Jones agree, as a result of these circumstances bonds in the nineties will almost certainly outperform stocks. In the fifties, says Dalio, wary investors were still looking in the rearview mirror at the Depression of the thirties, when stocks took the shellacking of all time. Thus, bonds remained the preferred investment when the environment of accelerating growth and inflation actually favored stocks. As a result, those who took what appeared to be a risk and bought stocks in the fifties wound up making fortunes, while those who bought bonds wound up eventually losing their shirts.

Now, says Dalio, the situation is precisely reversed. Investors in the nineties remain traumatized over the carnage that inflation and sky-high interest rates wreaked in the bond market in the seventies, so they’re investing in stocks instead. Unfortunately, says Dalio, the current economic climate of low inflation and historically slow growth means that bonds will actually prove to be the better long-term performers.

To be fair, bonds did perform well in the 1990s. The 10 year treasury returned nearly 67% in total from 1992-1999 or 6.6% per year. That’s pretty good for bonds. But the S&P 500 was up more than 316% or nearly 20% per year from 1992-1999.

Dalio was wrong again.

Then in 2015, Dalio began warning we could see a repeat of the 1937 downturn. This nasty recession and 50% market crash is highly underrated by historical standards because it was sandwiched between the Great Depression and WWII. Dalio made a similar prediction for a 1937 situation in 2017.

Alas, there was no double-dip recession following the Great Financial Crisis. The stock market and the economy were doing just fine until the pandemic hit and now are back on trend.

Now, I’m not pointing out Dalio’s mistakes here to rub it in his face. We all get stuff wrong when it comes to the markets. This stuff is hard…

…Whatever the case may be, it appears Dalio doesn’t allow his macro predictions to influence Bridgewater’s investment strategy. Or if he does, it certainly doesn’t show up in their long-term track record.

I’m a huge advocate for default settings as an investor.

You should default your savings rate. Default increases to that savings rate over time. Default your investment choices. Default your bill payments. Automating good decisions ahead of time is one of the most important steps you can take to meaningfully improve your finances.

And when it comes to investing, the most important default by far is optimism.

Yes, there are always going to be risks but pessimism does not pay as a strategy over the long-run.

If you’re not optimistic about the future, what’s the point of investing in the first place?

3. Too Much, Too Soon, Too Fast – Morgan Housel

Let me tell you about Robert Wadlow. He was enormous, the largest human ever known.

A pituitary gland abnormality bombarded Wadlow’s body with growth hormone, leading to staggering size. He was six feet tall at age seven, seven feet tall by age 11, and when he died at age 22 stood an inch shy of nine feet tall, weighed 500 pounds, and wore size 37 shoes. His hand was a foot wide.

He was what fictional stories would portray as a superhuman athlete, capable of running faster, jumping higher, lifting more weight and crushing more bad guys than any normal person. Like a real-life Paul Bunyan.

But that was not Wadlow’s life at all.

He required steel leg braces to stand and a cane to walk. His walk wasn’t much more than a limp, requiring tremendous effort. What few videos of Wadlow exist show a man whose movements are strained and awkward. He was rarely seen standing on his own, and is usually leaning on a wall for support. So much pressure was put on his legs that near the end of his life he had little feeling below his knees. Had Wadlow lived longer and kept growing, casual walking would have caused leg bones to break. What actually killed him was nearly as grim: Wadlow had high blood pressure in his legs due to his heart’s strain to pump throughout his enormous body, which caused an ulcer, which led to a deadly infection.

You can’t triple the size of a human and expect triple the performance – the mechanics don’t work like that. Huge animals tend to have short, squatty legs (rhinos) or extremely long legs relative to their torso (giraffes). Wadlow grew too large given the structure of the human body. There are limits to scaling.

Writing before Wadlow’s time, biologist J.B.S. Haldane once showed how many things this scaling issue applies to.

A flea can jump two feet in the air, an athletic human about five. But if a flea were as large as a man, it would not be able to jump thousands of feet – it doesn’t scale like that. Air resistance would be far greater for the giant flea, and the amount of energy needed to jump a given height is proportional to weight. If a flea were 1,000 times its normal size, its hop might increase from two feet to perhaps six, Haldane assumed.

Look around and this concept is everywhere, in every direction…

…“For every type of animal there is a most convenient size, and a change in size inevitably carries with it a change of form,” Haldane wrote.

A most convenient size.

A proper state where things work well, but break when you try to scale them into a different size or speed.

Which, of course, also applies to business and investing.

4. Apple, CAID, and China: rock, meet hard place – Eric Seufert

Early this week, it was revealed that the China Advertising Association (CAA), a state-backed advertising trade group in China, has rolled out its China Advertising ID (CAID) to a consortium of large Chinese advertisers for use as an alternative to the IDFA, which is set to be deprecated imminently in iOS 14.5.

The CAID is effectively a crowd-sourced persistent ID derived from device fingerprints: the CAA has created something of a data co-op, where members — which pay a participation fee — pool IP-indexed fingerprints to allow for devices to be identified as they engage with apps. The general idea is that if enough parameters are captured for a given device in a fingerprint, and the device is fingerprinted in enough apps in a short amount of time, the device can be identified even when its IP address changes because the other parameters (like memory utilization) stay relatively constant.

Building this type of probabilistic identity mechanism is fairly straightforward, but in order for it to be viable, participation and coordination are required from publishers that have large and overlapping user bases. This is the reason I was skeptical of such a solution being broadly adopted, as I articulated in this Twitter thread from a few months ago: in order for a fingerprinting solution based on IP addresses to provide utility, frequent touchpoints with users must be maintained to capture fingerprint snapshots that change subtlely enough for an identity to be probabilistically valid. It seemed unlikely that Western companies would be willing to cooperate to the degree necessary to deliver that. But the ability to coordinate nearly unimaginable, mass-scale projects, of the flavor seen during COVID, is the Chinese government’s distinctive advantage. Whereas a data co-op comprised of large US-based app publishers and ad networks is nearly unimaginable, apparently, ByteDance, Tencent, and Baidu are all participating in the CAID program that is organized by the state-sponsored CAA.

The development and adoption of the CAID puts Apple in a difficult position. Rock, meet hard place: China is Apple’s second-largest market after the US, and the specter of a WeChat ban on the iPhone during the Trump administration was estimated to potentially reduce Apple’s iPhone sales revenue by up to 30%. Apple already applies a separate standard with its App Store guidelines for certain Chinese developers, allowing eg. Tencent to run what is essentially an app store inside of WeChat. Would Apple simply extend this notion of a separate Chinese principle to privacy and allow CAID to be used for persistent identity by Chinese companies while subjecting companies domiciled elsewhere (read: Facebook) to the restrictions of ATT, which explicitly prohibits fingerprinting?

5. Twitter thread on the laws that govern the banking business – Maxfield on Banks

The longer you study a subject, the closer you get to the core laws that govern it. Here are 10 laws that govern banking, deduced from a decade of studying the industry… [thread]

1. Success in banking is foremost about winning a war of attrition. More than 17,300 banks have failed since the birth of the modern American banking industry in the Civil War. That’s over three times the number of banks in business today…

…3. The darlings in one era are often pariahs in the next. In 1978, Continental Illinois Bank & Trust was selected by Dun’s Review as one of America’s five best-managed companies. Six years later, it was seized by the FDIC due to mismanagement.

4. The crux of banking is watching what others are doing and then not doing it yourself. Warren Buffett calls this the institutional imperative: “the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so.”

5. Credit quality is a myth until it’s a reality. Washington Mutual’s nonperforming assets as a % of all assets:

1998: 0.73%
1999: 0.55%
2000: 0.53%
2001: 0.93%
2002: 0.97%
2003: 0.70%
2004: 0.58%
2005: 0.57%
2006: 0.80%
2007: 2.17%
2Q08: 6.62%
4Q08: Failed…

…8. All roads lead to skin in the game. One reason M&T Bank has been so successful, its CEO Rene Jones once explained, “is that we could get 60% of our shareholders seated around the coffee table in my predecessor’s office.”

6. 2020 in Review – Howard Marks

Finally, much of the worry about whether we’re in a bubble relates to valuations. For the S&P 500, for example, the current ratio of price to projected 2021 earnings is roughly 22 (depending on which earnings estimates you use). This seems expensive compared to the historic average in the range of 15-16. But knee-jerk judgments based on the relationship between current valuations and historic averages are too simplistic to be dispositive. Before making a judgment about today’s valuation of the S&P 500, one must consider (a) the context in terms of interest rates, (b) the shift in its composition in favor of rapidly growing technology companies, with their higher valuations, (c) the valuations of the index’s individual components, including those tech companies, and (d) the outlook for the economy. With these factors in mind, I don’t think most of today’s asset valuations are crazy. Of course, a big correction in speculative stocks could have a negative impact on today’s bullish investor psychology.

In particular, as to item (a) above, we can look at the relationship between today’s 4.5% earnings yield* on the S&P 500 and the yield on the 10-year Treasury note of 1.4%. The implied “equity risk premium” of 310 basis points is very much in line with the average of 300 bp over the last 20 years. Valuations can also be viewed relative to short-term interest rates. The current p/e ratio on the S&P 500 of 22 is slightly below the reading of 24 in March 2000 (the height of the tech bubble), and the fed funds rate is around zero today versus 6.5% back then. Thus, in 2000, the earning yield on the S&P 500 was 4.2%, or 230 basis points below the fed funds rate, while today it’s 450 bp above. In other words, the S&P 500 is much cheaper today relative to short-term rates than it was 21 years ago.

The story is similar in the credit market. For example, the yield spread on high yield bonds versus Treasurys is below the historic range, although probably still more than adequate to offset likely credit losses. Thus, as with most other assets today, the price of high yield bonds is high in the absolute, fair-ish in relative terms, and highly reliant on interest rates staying low.

So where does that leave us? In many ways, we’re back to the investment environment we faced in the years immediately prior to 2020: an uncertain world, offering the lowest prospective returns we’ve ever seen, with asset prices that are at least full to high, and with people engaging in pro-risk behavior in search of better returns. This suggests we should return to Oaktree’s pre-Covid-19 mantra: move forward, but with caution. But a year or two ago, we were in an economic recovery that was a decade old – the longest in history. Instead, it now appears we’re at the beginning of an economic up-cycle that’s likely to run for years.

Over the course of my career, there have been a handful of times when I felt the logic for calling a top (or bottom) was compelling and the probability of success was high. This isn’t one of them. There’s increasing mention of a possible bubble based on concerns about valuations, federal government spending, inflation and interest rates, but I see too many positives for the answer to be black-or-white.

7. Twitter thread on lessons learned from working for Sheryl Sandberg, currently Facebook’s COO – Dan Rose

I learned about leadership & scaling from Sheryl Sandberg. My direct manager for 10+ yrs, we spent countless hours together in weekly 1x1s (she attended religiously), meetings, offsites, dinners, travel, etc. Here are some of the most important lessons I took away from Sheryl:

In one of our early M-team offsites, everyone shared their mission in life. Sheryl described her passion for scaling organizations. She was single-mindedly focused on this purpose and loved everything about scaling. It’s a huge strength to know what you were put on earth to do.

Sheryl implemented critical systems to help us scale – eg 360 perf reviews, calibrations, promotions, refresh grants, PIPs. She brought structure to our management team and board meetings, hired senior people across the company, and streamlined communications up and down the org.

Sheryl told Mark the things he didn’t want to hear. As companies grow, people don’t want to give the CEO bad news. Mark knew Sheryl would never worry about losing her job or falling out of favor. And over time Sheryl taught me and others how to be truth-tellers for her and Mark.

Sheryl refused to participate in late night meetings. She had the confidence to admit she went to bed at 10pm and told Mark she’d be happy to meet when she woke up at 5am if he still hadn’t gone to bed yet. Her vulnerability was inspiring and signaled strength not weakness…

…Sheryl & I disagreed early on about a decision. I thought Mark would agree with me so I went around her to make my case. She sat me down and explained that if we were going to work together she needed to be able to trust me. She invited escalation but insisted on transparency.

We faced a tough situation with a partner and one of their board members asked Sheryl to meet. She invited me to join but I demurred, I knew this would be a contentious mtg. She told me about one of her colleagues in DC who testified when nobody else wanted to – “step up, own 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. Of all the companies mentioned, we currently have a vested interest in Apple, Facebook, and Tencent. Holdings are subject to change at any time.

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

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

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

Here are the articles for the week ending 14 March 2021:

1. The Fed Isn’t Printing As Much Money As You Think – Morgan Housel

The risk of rising inflation over the next few years is probably the highest it’s been in decades. Inflation happens when too much money chases too few goods, and Covid-19 closed a lot of businesses and gave people an unprecedented amount of money. The stars align.

That out of the way, let me cool things down: The Fed is printing a lot of money, but not nearly as much as it looks…

…Money supply has increased from $4 trillion a year ago to $18 trillion today.

A 450% increase!

That’s something you might see in a third-world country with hyperinflation.

But before you dump life savings into gold and build a bunker, here’s the punchline: The huge majority of the increase you’re seeing in this chart is not money printing or new money creation.

It’s an accounting rule change.

Here’s what happened.

The supply of money is measured a few different ways. M1, which this chart shows, measures money that’s readily available – mostly paper cash, coins, and checking accounts.

Another measure called M2 is a little broader. It includes money in savings accounts and retail money market accounts.

The difference between a checking and savings account is how often you can access your money. That might seem trivial but it explains most of what happened in this chart.

If you put money in a checking account, regulators make banks set aside a cushion as reserves in case they get into trouble. But if you put money into a savings account, regulators tell banks they don’t have to reserve anything. The catch is that it’s only considered a savings account if the consumer is allowed to make no more than six withdrawals per month.

It’s worked that way for years.

But then Covid hit, and regulators realized that having trillions of dollars in savings accounts with limited withdrawals was a burden as 22 million people lost their jobs.

So last April the Fed changed the rules and eliminated the six-withdrawal limit on savings accounts…

…But it changed the relationship between M1 and M2.

Savings accounts are measured in M2 and left out of M1. But once the six-withdrawal rule was removed, every savings account suddenly became, in the eyes of regulators and people who make these charts, a checking account.

So M1 exploded higher. Not because the Fed printed a bunch of money, but because trillions of dollars in savings accounts were reclassified as checking accounts.

2. Twitter thread on how the great physicist Richard Feynman developed deep understanding of a given topic – Sahil Bloom

Richard Feynman observed that complexity and jargon are often used to mask a lack of deep understanding. The Feynman Technique is a learning framework that forces you to strip away needless complexity and develop a deep, elegant understanding of a given topic. The Feynman Technique involves four key steps:

(1) Identify
(2) ELI5 (“Explain It To Me Like I’m 5”)
(3) Reflect & Study
(4) Organize, Convey & Review

Let’s cover each step and how you can make this powerful framework work for you…

Step 1: Identify
What is the topic you want to learn more about?
Identify the topic and write down everything you know about it.
Read and research the topic and write down all of your new learnings (and the sources of each).
This first step sets the stage for what is to come.

Step 2: ELI5
Attempt to explain the topic to a child.
Once again, write down everything you know about your topic, but this time, pretend you are explaining it to a child.
Use simple language and terms.
Focus on brevity.

Step 3: Reflect & Study
Reflect on your performance in Step 2.
How well were you able to explain the topic to a child? Where did you get frustrated? Where did you resort to jargon or get stuck?
These are the gaps in your understanding.
Read and study to fill them.

Step 4: Organize, Convey & Review
Organize your elegant, simple language into a compelling story or narrative.
Convey it to others. Test-and-learn. Iterate and refine your story or narrative accordingly.
Review (and respect) your new, deeper understanding of the topic.

3. Write Simply – Paul Graham

There’s an Italian dish called saltimbocca, which means “leap into the mouth.” My goal when writing might be called saltintesta: the ideas leap into your head and you barely notice the words that got them there.

It’s too much to hope that writing could ever be pure ideas. You might not even want it to be. But for most writers, most of the time, that’s the goal to aim for. The gap between most writing and pure ideas is not filled with poetry.

Plus it’s more considerate to write simply. When you write in a fancy way to impress people, you’re making them do extra work just so you can seem cool. It’s like trailing a long train behind you that readers have to carry.

And remember, if you’re writing in English, that a lot of your readers won’t be native English speakers. Their understanding of ideas may be way ahead of their understanding of English. So you can’t assume that writing about a difficult topic means you can use difficult words.

Of course, fancy writing doesn’t just conceal ideas. It can also conceal the lack of them. That’s why some people write that way, to conceal the fact that they have nothing to say. Whereas writing simply keeps you honest. If you say nothing simply, it will be obvious to everyone, including you.

Simple writing also lasts better. People reading your stuff in the future will be in much the same position as people from other countries reading it today. The culture and the language will have changed. It’s not vain to care about that, any more than it’s vain for a woodworker to build a chair to last.

Indeed, lasting is not merely an accidental quality of chairs, or writing. It’s a sign you did a good job.

4. State of the Cloud 2021 – Bessemer Venture Partners

Top takeaways

1. Cloud companies have not just reset in the New Normal, but have thrived with a record-breaking market capitalization of more than $2 trillion.
2.There’s been a changing of the guard afoot: MT SAAS has overtaken FAANG.
3. Cloud multiples are rising to new heights, with both public and private cloud trading over 20x.
4. Cloud growth rates and access to capital are at all-time highs, with the average Cloud 100 company growing 80% YoY and $186 billion going into private cloud companies in 2020 alone.
5. Good-better-best of growth endurance is 70%-75%-80%.
6. GTM strategies have adapted in the New Normal; best practices include product-led growth, usage-based pricing, and the adoption of cloud marketplaces.

5. Interview: Patrick Collison, co-founder and CEO of Stripe – Noah Smith

N.S.: So, what are the three things that excite you most about the 2020s?

It’s hard to restrict to three! But here are the first that jump to mind:

First, the explosive expansion in access to opportunity facilitated by the internet. Sounds prosaic but I think still underestimated. Several billion people recently immigrated to the world’s most vibrant city and the system hasn’t yet equilibrated. When you think about how YouTube is accelerating the dissemination of tacit knowledge, or the number of creative outsiders who can now deploy their talents productively, or the number of brilliant 18 year-olds who can now start companies from their bedrooms, or all the instances of improbable scenius that are springing up… in the landscape of the global commons, the internet is nitrogen fertilizer, and we still have a long way to go — economically, culturally, scientifically, technologically, socially, and everything in between. I challenge anyone to watch this video and not feel optimistic.

Second, progress in biology. I think the 2020s are when we’ll finally start to understand what’s going on with RNA and neurons. Basically, the prevailing idea has been that connections between neurons are how cognition works. (And that’s what neural networks and deep learning are modeled after.) But it looks increasingly likely that stuff that happens inside the neurons — and inside the connections — is an important part of the story. One suggestion is that RNA is actually part of how neurons think and not just an incidental intermediate thing between the genome and proteins. Elsewhere, we’re starting to spend more time investigating how the microbiome and the immune system interact with things like cancer and neurodegenerative conditions, and I’m optimistic about how that might yield significantly improved treatments. With Alzheimer’s, say, we were stuck for a long time on variants of plaque hypotheses (“this bad stuff accumulates and we have to stop it accumulating”)… it’s now getting hard to ignore the fact that the immune system clearly plays a major — and maybe dominant — role. Elsewhere, we’re plausibly on the cusp of effective dengue, AIDS, and malaria vaccines. That’s pretty huge.

Last, energy technology. Batteries (88% cost decline in a decade) and renewables are well-told stories and the second-order effects will be important. (As we banish the internal combustion engine, for example, we’ll reap a significant dividend as a result of the reduction in air pollution.) Electric aircraft will probably happen, at least for shorter distances. Solar electricity is asymptoting to near-free, which in turn unlocks other interesting possibilities. (Could we synthesize hydrocarbons via solar powered atmospheric CO2 concentration — that is, make oil out of air — and thereby render remaining fossil fuel use-cases carbon neutral?) There are a lot of good ideas for making nuclear energy safer and cheaper. France today gets three quarters of its electricity from nuclear power… getting other countries to follow suit would be transformatively helpful in averting climate change.

There’s lots more! New semiconductor technology. Improved ML and everything that that enables. Starlink — cheap and fast internet everywhere! Earth-to-earth travel via space plus flying cars. The idea of urbanism that doesn’t suck seems to be gaining traction. There’s a lot of good stuff on the horizon.

6. The Biggest Economic Experiment in History – Ben Carlson

The Great Depression left an indelible mark on household finances because there was no government backstop. No unemployment insurance. No Social Security. No checks in the mail.

So a generation of frugal misers was born.

I don’t think we have to worry about that happening this time around. If anything, people are worried about the opposite — a nation of risk-takers and speculators.

It’s way too early to draw any concrete conclusions just yet but the total amount of money that’s helped get people through the pandemic is staggering…

…But the Post notes the total tab is $2.2 trillion to workers and families in total from each of these bills. That’s more than the government spends on Social Security, Medicare and Medicaid combined in a given year.

There are, of course, people who are worried about this level of spending. Who is going to pay for all of this government debt? What happens if this overheats the economy and we get inflation?

These concerns are valid. There are risks here.

It should be noted that government debt doesn’t ever truly get paid back. It’s not a mortgage. One of the ways you “pay” it back is through higher economic growth and inflation.

It’s understandable why people are nervous about the prospect of inflation from all this spending. The first thing people think about when they hear the word ‘inflation’ is higher prices. Why would anyone want to pay higher prices for goods and services?

But inflation does not exist in a vacuum and it’s not all bad.

The entire reason the Fed is willing to let inflation run a little hot is because they’re trying to get to full employment.1 If that happens companies will either have to become more productive and efficient or pay more to attract talent.

This is one of the things most people miss when thinking about the ramifications of inflation. Yes, prices rise and your standard of living becomes more expensive but the only way we get sustained inflation is through wage increases. And that higher inflation could come with higher economic growth as well. The whole pie could get bigger.

You can have both at the same time…

…Listen, I have no idea what’s going to come from all of this spending. No one does. This is unprecedented. I’m trying to see both sides of the potential outcomes.

We could see the roaring 20s. GDP growth of 4-5% over the next 3-4 years is on the table.

We could see inflation get out of control, which causes the Fed to raise rates or the government to raise taxes or both, leading to a recession.Financial assets could take off from a booming economy or struggle because of inflation.

All I know is this is an economic experiment on a massive scale the likes of which this country has never seen before.

And for once, the lower and middle class appear to be the main beneficiaries.

7. The day the growth trade topped – Josh Brown

One of the myriad ways you can spot a veteran investor amid a crowd of new or inexperienced investors – the veteran doesn’t need a reason to explain everything that’s happened. Veterans, after ten or twenty years, come to accept the randomness inherent in the game. Until you can accept that there isn’t always a reason for everything, it’s hard to move forward in this business.

Sometimes psychology just changes and sellers become in the mood to buy, or buyers get in the mood to sell. The media takes note of this shift in behavior and attitudes, and it sets out to find a reason for it afterwards. They do this because it satisfies the audience’s very human need for cause and effect. We all want linearly plotted story lines that have a beginning, a middle and an end. We want to know what force caused this or that reaction, because – our minds reason – if we see that force abate, then so too will we see the reaction subside.

This week it’s rising rates. Treasury bond rates are rising which is said to be bad for high multiple growth stocks therefore if we can just get ahead of when rates might stop rising, maybe people will stop selling high multiple growth stocks and start buying them again.

Now, of course, this “analysis” completely disregards the fact that stocks and interest rates have a history of rising together. This happens all the time. Stocks have risen in 13 of the last 15 rising rate environments. Tech stocks too. High multiple tech stocks 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 don’t have a vested interest in any companies mentioned. Holdings are subject to change at any time.

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

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

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

Here are the articles for the week ending 07 March 2021:

1. The Cost of Convenience – Max Kim

Coupang — a portmanteau of coupon and the sound of one going off: pang! — was launched in August 2010 by Kim Beom-seok, a Korean American in his early 30s, as a daily-deals “social commerce” venture modeled on Groupon. Launched with backing from Clayton Christensen’s Disruptive Innovation Fund, it was turning a modest profit by 2012, when Kim — who goes by “Bom Kim” in English — decided to take the company public on the Nasdaq.

The weekend before the listing was due, Bom Kim pulled the plug. His vision, he had said in numerous interviews, was to create something that left customers saying, “How did I ever live without Coupang?” — and his company wasn’t that. From then on, the company would model itself not on Groupon, but on Amazon.

By 2015, Coupang had built something that surpassed even Amazon: a long, unbroken supply chain, whereby products moved seamlessly from warehouse to driver to customer, with 99% of orders delivered within 24 hours, all year and 7 days a week. (Amazon has since made a similar delivery network.) In 2016, Coupang was named one of the 50 Smartest Companies by MIT Technology Review. The same year, Bom Kim appeared on Forbes’ “Global Game Changers” list with the tagline “beating Jeff Bezos at his own game.”

Like Bezos, Bom Kim had rightly predicted that faster and “frictionless” delivery — not just competitive pricing and wide selections — would be the future of e-commerce. And with its dense, smartphone-friendly urban populations, South Korea was close to a perfect market. At the time, a slate of third-party marketplaces and Groupon imitators made up most of the country’s e-commerce sector.

“In modeling itself after Amazon by investing aggressively in its own logistical infrastructure, Coupang swooped in and set an entirely new standard for e-commerce [in South Korea],” says Im Il, a professor at the Yonsei University School of Business in Seoul. “It eventually sparked both a price war and a delivery war across the entire market.”…

…To cement Coupang’s control over the last mile, Bom Kim did something that few others in the industry wanted to: he hired his own drivers.

In March 2014, the company launched what has since become its crowning achievement, Rocket Delivery, starting with 50 “Coupang Men” — full-time drivers in branded trucks — who guaranteed next-day delivery of packages, which the company calls “gifts.”

Referred to internally as “spreaders of happiness,” Coupang Men were the spiritual ambassadors of the company. To win over female customers in their 20s and 30s — a key demographic — Coupang Men handed out flowers and handwritten cards, snapped photos of packages to confirm delivery, and would know not to ring the doorbell at homes with babies.

Bom Kim called them “the weapon that Amazon doesn’t have.” And unlike local shipping companies, which hired fleets of drivers on precarious temp contracts, Coupang Men were given a fair wage, full insurance coverage, annual health checkups, 15 vacation days a year, and company trucks and gas…

…The toll of this rapid growth is not only financial. The pace of expansion and the demand for maximum speed and efficiency have placed an enormous burden on the people who work fulfilling Coupang’s orders…

…Tae-il, who is stocky with shaggy hair, is wearing his Coupang polo and navy-blue wraps on his arms and knees. He has just picked up the 300 or so packages he will be delivering today from the nearby delivery camp. These apartments are his first stop.

“I have 180 homes today,” he says by way of greeting. His truck is one of the newer models, which supposedly eliminate dead space with sliding side doors that open into three horizontal shelves. The truck is packed to the brim, with boxes squeezed into even the passenger seat. When Tae-il yanks the sliding door open, an avalanche of stuff spills out. Asked how the AI system that orchestrates the loading process works, he answers with an exasperated laugh: “AI? It’s humans that do this work.”…

…Far from the idealized image of the Coupang Man as a “spreader of happiness,” Tae-il, who works 52 hours, five days a week, has a beleaguered air about him. When asked why he’s not writing any personalized letters or dropping off candy, Tae-il sneers. “Not a single person does that anymore. If you do, you get called an idiot. And you will probably get written up for not making deliveries,” he says.

2. How Does the Stock Market Perform When Interest Rates Rise? – Ben Carlson

But it’s also worth remembering the stock market generally holds up well when rates are rising…

…Surprisingly, growth has performed even better than value in large, mid and small cap stocks when rates have risen in the past.

It may also be instructive to look at some historical examples of rising rate environments.

From 1954-1960, the 10 year treasury yield went from 2.3% to 4.7%. In that time, the S&P 500 was up 207% in total (17.4% annualized).

Then from 1971-1981, rates went vertical, rising from 6.2% to 13.7%. This period included sky-high inflation and the brutal 1973-1974 crash, but nominal returns were still pretty decent, at 113% in total (7.1% annual).

From 1993-1994, rates shot up from 6.6% to 8.0%. The S&P 500 was still up nearly 12% in total despite some carnage in the bond market.

At the tail-end of the dot-com bubble, rates rose from 5.5% in 1998 to 6.5% in 1999. Didn’t matter. Stocks were up more than 55% (although that was followed by a 50% crash beginning in early-2000).

From 2003 through 2007, rates went from 3.3% to 5.1%. The S&P rose nearly 83% (12.8% annualized) before the onset of the 2008 crash.

And the latest rising rate environment saw the 10 year go from 1.5% in 2012 to 3% by 2018. Even with the mini-bear market at the end of 2018, stocks were still up 131% in total.

Could rising rates lead to a stock market crash? Yes, that is possible.

Do we know what level of rates will potentially cause a crash? Nope.

Should the stock market care if interest rates are rising for the right reason? Time will tell.

Are tech stocks being propped up by extremely low interest rates? We’ll see.

The problem with the current rate environment is we’ve never experienced interest rates this low before. Maybe investors will become spooked at lower rates than they have in the past. Maybe markets will be given the benefit of the doubt if the economy is chugging along.

3. Google’s Latest Chess Move is Great News for the Open Internet – Jeff Green

Yesterday Google made yet another announcement regarding its approach to the future of identity. And in the 24 hours since then, I’ve fielded dozens of calls about what this means for the open internet and for The Trade Desk.

The short answer? Not much has changed. But what has changed, will ultimately prove positive.

To be clear, Google’s announcement went a step further than they had previously. Specifically, Google stated that “today, we’re making explicit that once third-party cookies are phased out, we will not build alternate identifiers to track individuals as they browse across the web, nor will we use them in our products.”

On the surface, that may not seem like news. Cookies are going away after all. Nothing new there. You already knew that. And, of course, cookies only impact the browsing internet. That’s about 20% of data-driven ads today. 20% is meaningful, but the open Internet has already created an alternative to third-party cookies — Unified ID 2.0. Additionally, cookies don’t matter much to the fastest growing areas of the digital advertising ecosystem, such as CTV. With CTV, consumers log in with an email or phone number and that login helps create everything from customized viewing recommendations to a better ad experience that features fewer, more relevant ads. And this is critical for content owners, who rely on advertising to pay for that expensive content. In this new golden era of TV content quality, ad revenue is crucial to almost every content creator except for Netflix.

Rather, the new revelation is that Google will not rely on any identifiers that they don’t own.

Why is that important? In any chess match, eventually you have to let pieces go. You trade a less valuable piece for those that matter most. Google is making a trade. With this announcement, Google is doubling down on its own properties, such as search and YouTube and adding bricks to the walls around those properties. The trade-off is that Google no longer values serving ads on the rest of the internet as much — certainly not as much as they once did. DoubleClick, the ad server and the ad exchange, will be operating at a small disadvantage going forward. DV360 will likely be in a similar position. On the open internet, they will not use alternative identifiers to cookies, but everyone else will.

Those alternatives, especially Unified ID 2.0, eliminate the cookie syncing problem that once hurt the open internet’s ability to scale. But perhaps most important, Unified ID 2.0 has been designed with the consumer in the driver’s seat. The consumer’s information is not identifiable. The consumer controls how their data is shared. And the consumer gets a simple, clear explanation of the value exchange of relevant advertising in return for free content. With this approach, Unified ID 2.0 has the best opportunity to become a new common currency of the open internet. It’s already beginning. It is a common currency that pays off the value exchange of the internet in a way that benefits publishers, advertisers and consumers. It is also one that cannot be controlled by any one company, including Apple or Google.

4. Twitter thread on the future of the cable TV industry – Matthew Ball

1/ I want to talk about cord cutting and how current forecasts/models are fundamentally flawed (in the technical sense)

I’ve been tracking this for years, and faulty estimates have always stemmed from a focus on cutting rates rather than leading indicators: usage and investment

2/ I describe the disruption-era Pay-TV ecosystem in three waves. It is critical to differentiate in order to prognostic. We are going into a fundamental new state, one never seen before.

I wrote about this here a year ago. Jan-Feb solidified it.

3/ Wave #1 is 2007-2015.

During this time, Pay-TV actually became MUCH better.

It’s VALUE got much better, too. 

Enormous surges in original TV quality (Mad Men, Breaking Bad, Thrones) + volumes (150 to 400 original scripted series per year) + RSN rights…

…5/ Wave #2: 2015-2019.

The Pay-TV ecosystem was still getting better (quality x volume) and now, finally, prices were coming down via vMVPDs. 

So we see a lot more/better content, plus lower prices. 

Two-sided value growth..

…7/ Wave #3: 2019-Present. 

For the first time ever, the Pay-TV ecosystem is getting *objectively* worse, defunded, underfunded, harvested. Disney takes half of FX’s slate and makes it exclusive to Hulu. Remaining half goes next day to Hulu with no/low ads, as does Hulu library…

…14/ This will not have a standard effect on cord cutting. It will not get steeper. Eventually, the floor will start to drop out

Live news/sports are the primary value drivers in the bundle today, true, but Paramount/Peacock now diverting these en masse too

15/ And the very companies that own the live sports/news networks are, for the first time, those driving the decline of Pay-TV too. They cannot do this while unaware of the harm being done to their other pockets, or without planning for further change

5. China’s “Semiconductor Theranos”: HSMC – Kevin Xu

China’s semiconductor ambition just had its first ponzi scheme fully exposed: Wuhan Hongxin Semiconductor Manufacturing (HSMC).

The HSMC ponzi scheme was led by a trio of characters, who have zero expertise in semiconductor (or anything tech related), but are experts in manipulating local government subsidies, construction contractors, a renowned but gullible former TSMC executive, and China’s desperate need for homegrown chips to pull of a heist so large it makes Theranos look amateur…

…Let’s first summarize the major elements of the HSMC heist that unfolded between late 2017 and early 2021 (which may read like a movie script, not real life):

Part I — the Trap:

• Throughout 2017, a man by the name of Cao Shan traveled across China looking for a local government to invest in his semiconductor scheme. (“Cao Shan” is actually a fake name this person uses, because his real name is already tainted by the scams he used to do back in his hometown.)
• Cao eventually found an accomplice, Mr. Long Wei, who worked his connections to get the City of Wuhan’s East-West Lake District Government to provide land and investment.
• Long brought another close friend into the fold: Ms. Li Xueyan, a small business owner who has opened restaurants and sold Chinese rice liquor.
• The trio — Cao, Long, Li — formed the board of directors of what became HSMC.

Part II — the Money:

• Throughout 2018, the trio worked to secure two sources of “income”: direct subsidies from the East-West Lake District Government (aka taxpayer money) and deposits from construction contractors who want to build the HSMC factory.
• Sourcing both government subsidies and contractor deposits is a strategy for scam factory projects to increase the amount of money to be scammed.
• The East-West Lake District Government decided to invest in HSMC partly because of its jealousy of a local rival district, which attracted and incubated a successful flash storage manufacturer.
• To make themselves look important and powerful, the trio would spread false rumors about their personal background. Long was rumored to be the grandson of some high-level official, while Li would pretend to be the sister of some other political figure.
• By May 2019, HSMC has received 6.5 billion RMB (~$1 billion USD) of investment from the district government. Cao and Long have quit the board, giving Li and her cronies full control. Cao began going to other provinces to set up similar ponzi schemes.

Part III — Chiang Shang-Yi, TSMC, and ASML:

• By June 2019, the trio targeted and successfully persuaded Chiang Shang-Yi, the legendary founding CTO of TSMC, to join HSMC as its CEO.
• To convince Chiang, HSMC spread false rumors publicly that it has already attracted 100 billion RMB (~$15 billion USD) of investments. They also took advantage of Chiang’s gullibility and professional insecurities. (At the time, Chiang was a consultant at SMIC, China’s largest chip foundry, with relatively little influence.)
• Using Chiang’s aura, HSMC started aggressively poaching engineers from TSMC with salary packages worth 2 to 2.5x more than what they were earning.
• Chiang also used his industry reputation to convince ASML, the Dutch company and world’s leading manufacturer of lithography equipment, to sell one DUV equipment to HSMC. (DUV is not the most advanced equipment, but this is still a huge coup given heavy US pressure at the time on the Dutch government to not sell to China.)
• December 2019, the ASML equipment was delivered to HSMC amidst huge fanfare. The company also secured more investment due to this accomplishment from the district government, totaling 15.3 billion RMB (~$2.4 billion USD).
• One month later, the same equipment was offered as collateral to a local Wuhan commercial bank for a 580 million RMB loan (~$90 million USD) — another new source of “income” for the heist.

Part IV — HSMC Collapses, Heist Completed:

• During the first half of 2020, while Wuhan was ravaged by the coronavirus, the trio began siphoning HSMC money away.
• One of its primary methods was conducting employee training programs with a company run by Li’s younger brother.
• HSMC also refused to pay its construction contractors money, owing tens of millions of dollars.
• By July 2020, it became clear that HSMC was a scam. Chiang left the company. The Wuhan city government started leaking news that HSMC is running out of money.
• By November 2020, Li was pushed out of the company and the East-West Lake District Government took full ownership of HSMC.
• By January 2021, Chiang rejoined SMIC. HSMC furloughed all its employees for 40 days and reduced salaries across the board.

6. What Is Quantum Computing? – CB Insights

Quantum computing is the processing of information that’s represented by special quantum states. By tapping into quantum phenomena like “superposition” and “entanglement,” these machines handle information in a fundamentally different way to “classical” computers like smartphones, laptops, or even today’s most powerful supercomputers.

Researchers have long predicted that quantum computers could tackle certain types of problems — especially those involving a daunting number of variables and potential outcomes, like simulations or optimization questions — much faster than any classical computer.

But now we’re starting to see hints of this potential becoming reality.

In 2019, Google said that it ran a calculation on a quantum computer in just a few minutes that would take a classical computer 10,000 years to complete. A little over a year later, a team based in China took this a step further, claiming that it had performed a calculation in 200 seconds that would take an ordinary computer 2.5B years — 100 trillion times faster.

Though these demonstrations don’t have practical use cases, they point to how quantum computers could dramatically change how we approach real-world problems like financial portfolio management, drug discovery, logistics, and much more.

Propelled by the prospect of disrupting countless industries and quick-fire announcements of new advances, quantum computing is attracting more and more attention from players including big tech, startups, governments, and the media.

7. When Everyone’s a Genius (A Few Thoughts on Speculation) – Morgan Housel

The end of a speculative boom can be inevitable but not predictable. Unsustainable things can last a long time. Identifying something that can’t go on forever doesn’t mean that thing can’t keep going for years. Years and years and years.

Part of it is emotion. During the Vietnam War Ho Chi Minh said, “You will kill ten of us, and we will kill one of you, but it is you who will tire first.” Emotional trends aren’t beholden to logic, which can keep them going far past any point of reason.

Part is storytelling. Unsustainable trends have life support if enough people think they’re true, and once people believe something’s true it gets hard to convince them it’s not. Or put differently: If enough people believe it’s true it’s just as powerful as actually being true.

Every investor is making bets on the future. It’s only called speculation when you disagree with someone else’s bet.

In hindsight there was as much speculation in the 1990s that Kodak and Sears would keep their market share as there was that eToys and Pets.com would gain market share. Both were bets on the future. Both were wrong. It happens.

Of course there’s a speculation spectrum. But let’s not pretend that others speculate while you only deal with certainties…

…Jim Grant once put it: “To suppose that the value of a stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Welles when he told them over the radio that the Martians had landed.”

Optimism is the best long-term mindset. And it requires a certain level of believing things that can’t be verified, either because you don’t have the technical skills to verify them – nobody knows everything – or because something hasn’t happened yet but you think it will happen in the future. Not enough speculation is just as dangerous as too much speculation.

---

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

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

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

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

Here are the articles for the week ending 28 February 2021:

1. What Are mRNA Therapies, And How Are They Used For Vaccines? – CB Insights

The ongoing Covid-19 pandemic has highlighted the potential for mRNA therapies, with both of the current FDA-approved Covid-19 vaccines leveraging mRNA. But the potential for mRNA spans beyond that, to treating other infectious diseases, genetic diseases, and even cancer.

Cells use mRNA to translate DNA into proteins, which then can be used to replace abnormal or deficient proteins or to prepare a patient’s immune system to fight against infections or cancerous cells…

…Traditionally, vaccines use fragments of proteins to train the immune system to attack viruses that show similar proteins. However, manufacturing these protein fragments can take months — a particularly challenging timeline in the midst of a pandemic.

In contrast, mRNA vaccines encode protein fragments into a single strand of mRNA, then rely on cellular machinery to produce the proteins. This cuts manufacturing time to a number of weeks.

Moderna Therapeutics, with a Covid-19 vaccine approval under its belt, is already developing 3 new mRNA-based vaccines for HIV, seasonal flu, and the Nipah virus. Another major player in the space, CureVac, has partnered with the Bill and Melinda Gates Foundation to develop vaccines for Rotavirus and malaria…

…mRNA may be the key to unlocking personalized cancer therapies. By combining genetic screening, liquid biopsies, and artificial intelligence, healthcare providers can design and manufacture mRNA therapies specifically made for patients’ unique tumor genetics. Similar to vaccines, mRNA can be used to encode cancer-specific proteins that teach the immune system to recognize and target only a tumor (and not healthy tissue).

There are currently 150+ mRNA-focused clinical trials ongoing for blood cancers, melanoma, brain cancer, prostate cancer, and more.

2. Best Story Wins –  Morgan Housel

The Civil War is probably the most well-documented period in American history. There are thousands of books analyzing every conceivable angle, chronicling every possible detail. But in 1990 Ken Burns’ Civil War documentary became an instant phenomenon, with 39 million viewers and winning 40 major film awards. As many Americans watched Ken Burns’ Civil War in 1990 as watched the Super Bowl that year. And all he did – not to minimize it, because it’s such a feat – is take 130-year-old existing information and wove it into a (very) good story.

Bill Bryson is the same. His books fly off the shelves, which I understand drives the little-known academics who uncovered the things he writes about crazy. His latest work is basically an anatomy textbook. It has no new information, no discoveries. But it’s so well written – he tells such a good story – that it became an instant New York Times bestseller and the Washington Post’s Book of the Year.

Charles Darwin didn’t discover evolution, he just wrote the first and most compelling book about it.

John Burr Williams had more profound insight on the topic of valuing companies than Benjamin Graham. But Graham knew how to write a good paragraph, so he became the legend…

…When a topic is complex, stories are like leverage.

Leverage is just something that squeezes the full potential out of something with less effort. Stories can leverage ideas in the same way debt can leverage assets.

Trying to explain something like physics is so hard if you’re just deadlifting facts and formulas. But if you can explain things like how fire works with a story about balls rolling down hills and running into each other – watch Richard Feynman, an astounding storyteller, do that here – you can explain something complex in seconds, without much effort.

This is more than just persuading others. Stories help you just as much. Part of what made Albert Einstein so talented was his imagination and ability to distill complexity into a simple scene in his head. When he was 16 he started imagining what it would be like to ride on a beam of light, holding onto the sides like a flying carpet and thinking through how it would travel and bend. Soon after he began imagining what your body would feel like if you were in an enclosed elevator riding through space. He contemplated gravity by imagining bowling balls and billiard balls competing for space on a trampoline surface. He could process a textbook of information with the effort of a daydream.

Ken Burns once said: “The common stories are 1+1=2. We get it, they make sense. But the good stories are about 1+1=3.” That’s leverage.

3. The Stock Market Is Smarter Than All of Us – Ben Carlson

In Wealth, War and Wisdom, Barton Biggs writes about two of my most favorite historical topics: (1) World War II and (2) the stock market.

Biggs gives a blow-by-blow history of many of the turning points in the war through the lens of stock markets in various countries.

Many of those market moves seem completely counterintuitive:

On September 1, 1939, Hitler invaded Poland and Prime Minister Neville Chamberlain, his voice quavering, announced Britain was at war with Germany. The next day the New York Stock Exchange experienced a three-day mini-buying panic with a 20 point or 7% gain in the Dow. Volume was the busiest in two years as investors anticipated defense orders would create an economic boom.

We were on the brink of a second world war in 20 years yet investors remained optimistic.

The London stock market more or less predicted the United States would come along to help before it was too late:

The London stock market deduced in the early summer of 1940, even before the Battle of Britain at a time when the world and even many English despaired, that Britain would not be conquered. Stocks made a bottom for the ages in early June although it wasn’t evident until October that there would be no German invasion in 1940 and until Pearl Harbor 18 months later, that Britain would prevail.

It almost seems that throughout 1941 the London stock market intuitively sensed and responded to the growing and deepening alliance between Britain and the United States. It was more confident of America’s entry into the war than even Churchill. Certainly there was no good war news to celebrate because Britain was suffering defeat after defeat.

Even the German stock market got ahead of the fact that the tide was turning on Hitler before anyone else:

Similarly, the German stock market, even though imprisoned in the grip of a police state, somehow understood in October of 1941 that the crest of German conquest had been reached. It was an incredible insight. At the time, the German army appeared invincible. It had never lost a battle; it had never been forced to withdraw. There was no sign as yet that the triumphant offensive into the Soviet Union was failing. In fact, in early December a German patrol actually had a fleeting glimpse of the spires of Moscow, and at the time Germany had domain over more of Europe than the Holy Roman Empire. No one else understood this was the tipping point.

The war didn’t end until 1945 but the Dow bottomed in the spring of 1942 and never looked back:

4. Yuval Noah Harari: Lessons from a year of Covid – Yuval Noah Harari

Three basic rules can go a long way in protecting us from digital dictatorships, even in a time of plague. First, whenever you collect data on people — especially on what is happening inside their own bodies — this data should be used to help these people rather than to manipulate, control or harm them. My personal physician knows many extremely private things about me. I am OK with it, because I trust my physician to use this data for my benefit. My physician shouldn’t sell this data to any corporation or political party. It should be the same with any kind of “pandemic surveillance authority” we might establish.

Second, surveillance must always go both ways. If surveillance goes only from top to bottom, this is the high road to dictatorship. So whenever you increase surveillance of individuals, you should simultaneously increase surveillance of the government and big corporations too. For example, in the present crisis governments are distributing enormous amounts of money. The process of allocating funds should be made more transparent. As a citizen, I want to easily see who gets what, and who decided where the money goes. I want to make sure that the money goes to businesses that really need it rather than to a big corporation whose owners are friends with a minister. If the government says it is too complicated to establish such a monitoring system in the midst of a pandemic, don’t believe it. If it is not too complicated to start monitoring what you do — it is not too complicated to start monitoring what the government does.

Third, never allow too much data to be concentrated in any one place. Not during the epidemic, and not when it is over. A data monopoly is a recipe for dictatorship. So if we collect biometric data on people to stop the pandemic, this should be done by an independent health authority rather than by the police. And the resulting data should be kept separate from other data silos of government ministries and big corporations. Sure, it will create redundancies and inefficiencies. But inefficiency is a feature, not a bug. You want to prevent the rise of digital dictatorship? Keep things at least a bit inefficient.

The unprecedented scientific and technological successes of 2020 didn’t solve the Covid-19 crisis. They turned the epidemic from a natural calamity into a political dilemma. When the Black Death killed millions, nobody expected much from the kings and emperors. About a third of all English people died during the first wave of the Black Death, but this did not cause King Edward III of England to lose his throne. It was clearly beyond the power of rulers to stop the epidemic, so nobody blamed them for failure.

But today humankind has the scientific tools to stop Covid-19. Several countries, from Vietnam to Australia, proved that even without a vaccine, the available tools can halt the epidemic. These tools, however, have a high economic and social price. We can beat the virus — but we aren’t sure we are willing to pay the cost of victory. That’s why the scientific achievements have placed an enormous responsibility on the shoulders of politicians.

Unfortunately, too many politicians have failed to live up to this responsibility. For example, the populist presidents of the US and Brazil played down the danger, refused to heed experts and peddled conspiracy theories instead. They didn’t come up with a sound federal plan of action and sabotaged attempts by state and municipal authorities to halt the epidemic. The negligence and irresponsibility of the Trump and Bolsonaro administrations have resulted in hundreds of thousands of preventable deaths…

…One reason for the gap between scientific success and political failure is that scientists co-operated globally, whereas politicians tended to feud. Working under much stress and uncertainty, scientists throughout the world freely shared information and relied on the findings and insights of one another. Many important research projects were conducted by international teams. For example, one key study that demonstrated the efficacy of lockdown measures was conducted jointly by researchers from nine institutions — one in the UK, three in China, and five in the US.

5. Get Smart: How To Find The Next Growth Stock – Chin Hui Leong

We love business stories. A great tale can help you learn more about a business than you can ever hope to learn from a textbook.

The best part is…

…the story which you are about to hear actually happened.

What we are about to share is not some made-up story to make a point about investing. It’s a real-life story about innovation and failure. With that in mind, let’s get started.

Over a decade ago, a CEO stood at the stage, ready to reveal his company’s next exciting product. The anticipation was high for a huge reveal. The atmosphere was electric. The hype was in the air.

…and then, the moment finally arrived.

The CEO unveiled what he called a “revolutionary and magical” product. In fact, he was so confident that he declared the company’s new product as being five years ahead of other similar products, instantly pulling the shade over all its competitors. The statement was nothing short of bold, to say the least.

Now, to his credit, the company followed up by launching two models of the product within six months. The initial sales were promising. But with Christmas around the corner, the company blinked. Less than three months after the product launch, it decided to completely eliminate one of its product models.

If that wasn’t embarrassing enough, the company cut the price of the remaining model by 33%. Predictably, the customers that bought earlier were incensed. With his tail between his legs, the CEO offered to provide a rebate to soothe the feelings of the early buyers of its product. But the damage had already been done…

We are going to pause for a moment here to let you take in all that you have read so far.

The hype, the reveal, the promise, the fleeting initial success, and the bitter disappointment that followed…

Now, with all that in mind, here’s the question for you…

Given all that you know, would you, dear reader, be willing to back this company’s “revolutionary and magical” product for the next decade?

6. What Happened to Gold? – Michael Batnick

If you went into a laboratory to build a gold price optimizer, you would want a couple of things.

• A falling dollar
• Rising inflation expectations
• Money printing
• Central bank balance sheets expanding
• Fiscal deficits increasing Political turmoil

All of these things were in place over the last few months, and yet gold has done the opposite of what you expected it to do. It’s down 9% over the last 6 months, and it’s 15% below its highs in August.

Gold could rally on any one of the items I mentioned. All six were in place at the same time, and it couldn’t get out of its own way.

7. Dreams All the Way Up – Packy McCormick

In the late 1860’s, when the mile record stood at 4:36, runners around the world started seriously attempting to break the four minute barrier. Three different Walters in a row traded the record, bringing it down below 4:20 by the mid 1880’s.

Between 1942 – 1945, two Swedes, Gundar Hägg and Arne Andersson, traded the record four times, driving it down from 4:06.2 to 4:01.4, a nearly 5-second improvement in just three years. And then, nothing. The record stood, unimproved, for the next nine years, until Roger Bannister stepped up to the starting line at Iffley Road sports ground in Oxford.

Bannister took two seconds off the record, completing his mile in 3:59.4 and becoming the first person in history to break the four-minute mile.

His record stood for 46 days. John Landy smashed it with a 3:58.0. A year later, three runners broke the 4-minute mile in the same race, and today, over 1,500 people have run a competitive mile in under four minutes. Hicham El Guerrouj holds the world record with a 3:43.13 that he ran in 1999.

The moral of the story here is that there wasn’t necessarily anything physical keeping humans from breaking four minutes; it was mental. When people saw it could be done, they just kind of … did it. Bannister, through extraordinary performance, eliminated a mental barrier, and afterwards, other great but not all-time exceptional runners followed his lead.

In the public markets in the 2010s, the $1 trillion market cap was the four-minute mile. As someone who owned Apple stock and options earlier in the decade, I can tell you how frustrating it was that the stock seemed to trade at a discount (sub-10x P/E ratio) simply because it was so big, despite insane profitability and growth. $1 trillion felt like a restraining wall.

Then, on August 2, 2018, an extraordinary company broke another mental barrier, when Apple became the first US company to crack the $1 trillion market cap mark.

What happened next wasn’t quite the immediate flood that Bannister unleashed, but within 16 months, by January 2020, three more companies — Microsoft, then Amazon, then Google — had broken $1 trillion. FAAMG had been undervalued across the board. Since Apple couldn’t break $1 trillion for psychological reasons, and it was clear that the other four weren’t as valuable as Apple, they had to be worth some discount to Apple’s artificially low market cap.

Apple took the governor off, and today, after a wild, tech-friendly pandemic and zero interest rate policy (ZIRP) drove stocks higher, the FAAMG market caps are:

• Apple: $2.273 trillion
• Microsoft: $1.848 trillion
• Amazon: $1.651 trillion
• Google: $1.415 trillion
• Facebook: $770 billion

If certain parts of the market feel bubbly, these companies don’t. They’re category-defining companies that continue to grow and innovate at a faster clip than megacaps ever have before, and they trade at very reasonable NTM EV/EBITDA multiples: 

• Apple: 22.0x
• Microsoft: 24.8x
• Amazon: 22.4x
• Google: 15.4x
• Facebook: 13.1x

That’s not bubbly…

…Here’s my logic: FAAMG stocks seem to be reasonably priced and good anchors off of which everything else is pegged. FAAMG (particularly Amazon and FB) market caps have actually grown faster than startup and non-FAAMG public tech valuations. Startup and non-FAAMG valuation growth is just starting to catch up to FAAMG growth over the past year.

Startups and smaller cap tech companies are being valued based on a probability that they can become as big as the FAAMG companies (or the biggest companies in their verticals), and even at the same probability, they should be worth 5-15x as much as they were worth a decade ago, because the ceiling has risen that much.

In other words, if you think that FAAMG are reasonably valued, and you think that the probability of newer companies coming in and eventually growing as big as the biggest tech companies is about the same as it was a decade ago, startups and smaller cap tech companies are actually fairly valued or even undervalued today…

…Shopify’s relationship with Amazon is the textbook example of P/FAAMG valuation.

Since going public in May 2015, Shopify’s stock is up over 5,000%. It’s currently trading at a 60x NTM EV / Revenue multiple and a 395.7x NTM PE ratio. Those are both very high numbers if you’re valuing Shopify based on the fundamentals, and indeed, Shopify has felt expensive at almost every point on its meteoric rise since late 2018.

Breaking apart SHOP’s valuation that way, there are two factors: how much has Amazon grown, and how much has the probability that Shopify becomes as big as Amazon changed? 

• Amazon Market Cap. Over the past five years, Amazon has grown its market cap 6.7x, from $245 billion to $1.65 trillion.
• Probability SHOP Becomes AMZN. The implied probability that Shopify becomes Amazon, based on their relative market caps, has increased from 0.68% to 10.76%, not taking into account the fact that Amazon is likely to continue to get bigger as SHOP catches up. 

Let’s assume Amazon’s future growth and the discount rate come out in the wash, which is conservative, and we’re left with an ~11% chance that Shopify becomes as big as Amazon. If you believe that Amazon is fairly valued, and that an 11% chance of Shopify becoming Amazon is reasonable, then Shopify’s market cap isn’t as crazy as it seems from looking only at traditional valuation metrics.

---

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

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

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

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

Here are the articles for the week ending 21 February 2021:

1. 12 Things I Remind Myself When Markets Go Crazy – Ben Carlson

1. There is no such thing as a normal market. Uncertainty is the only constant when investing. Get used to it.

2. The most effective hedge is not necessarily an investment strategy. The best hedge against wild short-term moves in the markets is a long time horizon.

3. Your gains will be incinerated at some point. Investing in risk assets means occasionally seeing your gains evaporate before your eyes. I don’t know why and I don’t know when but at some point a large portion of my portfolio will fall in value. That’s how this works.

4. You still have a lot of time left. I’m still young(ish) with (hopefully) a number of decades ahead of me to save and invest. That means I’m going to experience multiple crashes, recessions, bull markets, manias, panics and everything in-between in the years ahead.

The current cycle won’t last forever just like the last one or the next one.

5. Know yourself. One of the biggest mistakes you can make as an investor is confusing your risk profile and time horizon with someone else’s. Understanding how markets generally work is important but understanding yourself is the key to successful investing over the long haul.

6. There’s nothing wrong with using a “dumb” strategy. Buy and hold is one of the dumbest investment strategies ever…that also happens to have the highest probability of success for the vast majority of investors.

There’s no shame in keeping things simple.

7. The crowd is usually right. Being contrarian will always make you feel like you’re smarter than everyone else, but the crowd is right more often than it’s wrong when it comes to the markets. Yes, things can get overcrowded at times but being a contrarian 100% of the time will lead you to be wrong far more often than you’re right.

2. The Beginning of the End –  Dan Teran

Some view third party food delivery operators, such as DoorDash, UberEats, and Grubhub, as heroes of the pandemic, a lifeline to restaurants, creators of employment for masses of essential workers that are responsible for slowing the spread of the virus by keeping diners safely in their homes.

Others view these firms as unscrupulous predators, draining profits from independent restaurants while undercompensating and mistreating delivery workers, all to satisfy the appetites of venture capital investors who have gambled billions of dollars on a business model that may never generate more cash than it has consumed…

…While the pandemic has driven unprecedented demand and introduced new narratives, the facts remain largely unchanged – the third party delivery industry is bad for independent restaurants, bad for delivery workers, and serves customers who are indifferent so long as their food arrives. The pandemic has brought these harsh truths irreversibly into the light, and it is for this reason that we will look back on this year not as one of good fortune for third party delivery, but as the beginning of the end…

…The case for the downfall of third party delivery begins and ends with the business model. Peter Drucker refers to a business model as “assumptions about what a company gets paid for.” Today’s third party delivery operators make the following assumption:

Restaurants will pay 30% of revenue for new customers, serviced by a third party delivery network.

This sounds reasonable. A few extra meals a night to new customers would better utilize existing resources and make the restaurant more profitable. A nice story, but not true.

While sales representatives from DoorDash and UberEats tell restaurateurs they are paying for new customers, in reality they know they will also be charged 30% to service existing and repeat customers, too. Industry data first shared with Expedite suggests that more than half of the orders placed on third party delivery platforms today are from repeat customers.

While third party delivery has always been a bad deal for restaurants, delivery did not represent a significant share of most restaurants business prior to 2020, and so the damage to a restaurant’s bottom line was obscured. The pandemic has brought an inconvenient truth into focus: third party delivery will kill your business if you let it, and third party delivery operators do not care.

How could third party delivery kill your business while bringing customers in the door? The model below shows a P&L for a restaurant that does ~$1M in sales annually at a 15% EBITDA margin, this would be considered very good by any standards. As you can see at the top, as third party delivery takes over more of the business, the business becomes incrementally worse. In this case, third party delivery begins to kill the business as soon as they reach 50% of revenue––sooner if you want to draw a salary, repair equipment, or pay back investors.

During the pandemic, many restaurants have gone from doing ~20% of their business through third party delivery platforms to ~80%, and watched their income statements turn from black to red, as fees ate their business alive. The message from third-party operators? Too bad.

3. SaaS Stocks Prove to Be Winners as Business World Moves to the Cloud – Chin Hui Leong

Before cloud computing arrived, traditional enterprise software was hard to deploy and costly to maintain.

Applications had to be installed by location. To do that, companies had to invest heavily in IT infrastructure, networks and software licenses. The implementation was also complex and could take as much as 18 months, according to an example cited by the Harvard Business Review.

And that’s not all.

There is also the high cost of maintaining the on-premise system. Enterprises had to hire teams of IT staff and consultants to integrate, support, and upgrade the on-premise applications.

Enter Marc Benioff, the founder and CEO of Salesforce (NYSE: CRM).

In 1999, Benioff founded Salesforce based on two big ideas: software should be delivered over the internet, and the service will be subscription-based.

Salesforce’s software is delivered over the internet, making its service easier to deploy and scale. The company’s subscription model removed most of the upfront cost associated with the traditional way of software deployment.

Armed with these advantages, Salesforce set its sights on the customer relationship management (CRM) market, where the problems associated with traditional enterprise software were the most acute.

The lower installation cost also allowed the company to target small and medium businesses. From there, Salesforce would gradually move upstream to take on larger enterprises.

And the rest, as they say, is history.

With an annual revenue base of over US$20 billion today, Salesforce is valued at close to US$220 billion.

Investors during the company’s IPO in 2004 would have made close to 90 times their original investment.

As Salesforce grew, the broader SaaS industry also came into its own.

4. What Your Data Team Is Using: The Analytics Stack – Justin Gage

The goal of any analytics stack is to be able to answer questions about the business with data. Those questions can be simple:

1. How many active users do we have?
2. What was our recurring revenue last month?
3. Did we hit our goal for sales leads this quarter?

But they can also be complex and bespoke:

1. What behavior in a user’s first day indicates they’re likely to sign up for a paid plan?
2. What’s our net dollar retention for customers with more than 50 employees?
3. Which paid marketing channel has been most effective over the past 7 days?

Answering these questions requires a whole stack of tools and instrumentation to make sure the right data is in place. You can think of the end product of a great analytics stack as a nicely formatted, useful data warehouse full of tables like “user_acquisition_facts” that make answering the above questions as simple as a basic SQL query. \

But the road to getting there is unpaved and treacherous. The actual data you need is all over the place, siloed in different tools with different interfaces. It’s dirty, and needs reformatting and cleaning. It’s constantly changing, and needs maintenance, care, and thoughtful monitoring. The analytics stack and its associated work is all about getting that data in the format and location you need it.

The basics:

1. Where data comes from: production data stores, instrumentation, SaaS tools, and public data
2. Where data goes: managed data warehouses and homegrown storage
3. How data moves around: ETL tools, SaaS connectors, and streaming
4. How data gets ready: modeling, testing, and documentation
5. How data gets used: charting, SQL clients, sharing

5. Stop Stressing About Inflation – Barry Ritholtz

Inflation occurs when one or more factors combine to drive prices higher. Often, wage pressures raise prices for good and services, filtering into the general economy (1960s). Sometimes, the combination of a weakening dollar and rising commodity prices send input costs higher, which kicks off an inflationary spiral (1970s). Third, there are times when the cost of capital becomes so cheap it sends anything priced in dollars or debt off into an upwards spiral of (2000s).

But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.

Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy. To fully understand this requires grasping how scarcity and abundance act as the drivers of the price of labor and goods. My suspicion is many economists who came of age during earlier eras of inflation fail to discern how the world has changed since.

Consider what this combination implies: the dominant modern world “flation” tends to be biased more towards falling than rising prices. We live in an era of Deflation, punctuated by occasional spasms of Inflation. This suggests that fears of inflation are likely to be more overstated, even with low monetary rates and high fiscal stimulus.

The net result: Forecasters have been over-estimating inflation by more than a little and hyper-inflation by more than a lot. Indeed, the Fed and most economists got this wrong in the 2000s, radically under-estimating how the novelty of ultra-low rates, high employment, and weak dollar caused prices to go higher.

Inflation was robust until the Great Financial Crisis came along; in its aftermath, inflation was (despite all too many forecasts) a no show. Persistent under-employment led to a lot of slack in the labor force, even as the US economy saw unemployment fall to below the 4% levels.

Perhaps this explains why so many economists forecast a post GFC inflation that never arrived. Post Covid, we should see hiring and lots of pent up demand and a transitory bout of modest inflation. But even that is likely to be much less of a threat than it has been in prior decades.

But not to the old school economists. Perhaps they need to reconfigure their models of what causes inflation and deflation. Being wrong for the past two decades should provide the motivation to update those models. Unfortunately, we see little evidence they are interested in changing their fundamental concept of what drives prices higher.

6. Twitter thread on what it’s like working for Jeff Bezos and Mark Zuckerberg – Dan Rose

People often ask me to compare working for Bezos vs Zuck. I worked with Mark much more closely for much longer, but I did work directly with Jeff in my last 2 years at Amazon incubating the Kindle. Here are some thoughts on similarities that make them both generational leaders:..

…They both lived in the future and saw around corners, always thinking years/decades ahead. And at the same time, they were both obsessive over the tiniest product and design details. They could go from 30,000 feet to 3 feet in a split second.

In the best tech companies, product defines strategy and culture. Jeff and Mark were both product CEOs first and foremost (though Jeff is arguably more commercial). Amazon and Facebook’s products are also an embodiment of Jeff and Mark’s individual personalities and values.

Neither of them would ever dwell on success. Every time I took a hill and looked up to celebrate, Jeff or Mark had already moved on to the next hill. They set unrealistic goals and were insanely intense, disciplined, hard working and hard driving…

…The skill set required to start a company is insanely different than being CEO of a mega corporation. Scaling of this magnitude requires tireless commitment, crazy focus, thick skin, unbridled ambition. You have to be a learning machine, constantly growing and pushing yourself….

…The cultures they built are also very different. Amzn is more siloed/secretive, while FB is radically open/transparent. There are pros and cons to each (which I will cover in a future post), but culture at both companies runs deep and is rooted in the values of the founder.

7. Congress Wants to Talk About GameStop – Matt Levine

Tenev also sheds some light on how Robinhood got a surprising margin call from its clearinghouse, and how it negotiated it down:

At approximately 5:11 a.m. EST on January 28, the NSCC sent Robinhood Securities an automated notice stating that Robinhood Securities had a deposit deficit of approximately $3 billion. That deficit included a substantial increase in Robinhood Securities’s VaR based deposit requirement to nearly $1.3 billion (up from $696 million), along with an “excess capital premium charge” of over $2.2 billion. SEC rules prescribe the amount of regulatory net capital that Robinhood Securities must have, and on January 28 the amount of the NSCC VaR charge exceeded the amount of net capital at Robinhood Securities, including the excess net capital maintained by the firm. Under NSCC rules, this triggered a special assessment—the “excess capital premium charge.” In total, the NSCC automated notice indicated that Robinhood Securities owed NSCC a total clearing fund deposit of approximately $3.7 billion. Robinhood Securities had approximately $696 million already on deposit with NSCC, so the net amount due was approximately $3 billion.

Between 6:30 and 7:30 am EST, the Robinhood Securities operations team made the decision to impose trading restrictions on GameStop and other securities. In conversations with NSCC staff early that morning, Robinhood Securities notified the NSCC of its intention to implement these restrictions and also informed the NSCC of the margin restrictions that had already been imposed. NSCC initially notified Robinhood Securities that it had reduced the excess capital premium charge by more than half. Then, shortly after 9:00 am EST, NSCC informed Robinhood Securities that the excess capital premium charge had been waived entirely for that day and the net deposit requirement was approximately $1.4 billion, nearly ten times the amount required just days earlier on January 25. Robinhood Securities then deposited approximately $737 million with the NSCC that, when added to the $696 million already on deposit, met the revised deposit requirement for that day.

Basically Robinhood got a normal margin call—its “VaR based deposit requirement”—for about $1.3 billion, because its customers were trading a lot of stocks that were very volatile. This margin call exceeded Robinhood’s regulatory capital, which under the clearinghouse’s rules triggers another, even bigger margin call. You can see why that would be a problem! We have talked about Robinhood’s clearinghouse margin call before, and we have discussed the destabilizing potential of these margin calls: As things get scary and volatile, clearinghouses have a lot of unchecked discretion to demand huge piles of money from brokers at exactly the worst moment for those brokers. Here, precisely because Robinhood was so thinly capitalized, its clearinghouse had the right to demand even more money from Robinhood, exacerbating the risk of disaster. And then it just waived the whole extra $2.2 billion charge and said “ehh never mind you’re fine,” because Robinhood agreed to stop trading so much of the volatile stocks.

---

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

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

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

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

Here are the articles for the week ending 07 February 2021:

1. 7 Life Lessons from a Guy Who Can’t Move Anything but His Face – Jon Morrow

The only parts of my body I can move are my eyes and lips. My hands, feet, arms, and legs, are almost totally paralyzed, managing the occasional twitch and nothing more.

And yet… I have an amazing life.

Using speech recognition technology, I’ve written articles read by more than 5 million people. I’ve also built several online magazines that have, shockingly, made me a millionaire.

“This can’t be real,” you say. “You did all this, and you can’t freaking move?”

Hard to believe, I know, but it’s true. I do it all from home, sitting in my wheelchair, speaking into a microphone.

I’ve traveled a good bit too. I’ve lived in San Diego, Miami, Austin, and even Mazatlan, Mexico…

…During my 34 years, I’ve had pneumonia 16 times, recovered from more than 50 broken bones, and spent literally years of my life in hospitals and doctor’s offices.

But I’m still here. Not only have I survived my condition, but I’ve built a life most people only dream about.

And starting today, I want to talk about how…

…At some point or another, life punches everyone in the face.

The punch may be hard, or it may be soft, but it’s definitely coming, and your success or failure is largely determined by the answer to a single question: how well can you take the punch?

Do you roll around on the ground, weeping and moaning? Do you rock back on your heels but then keep going? Or have you been punched so many times already you don’t even notice?

Personally, I’m a living example of the last one. If you want to know what it’s like to live with a severe disability, just imagine that every morning six big guys sneak into your room and beat the hell out of you. Most days, the beating isn’t so bad, and you can limp through your day. Every now and again though, they keep punching and kicking you until you’re bleeding and broken, lose consciousness, and wake up in the hospital breathing through a tube.

That’s the best way I know to describe my life. Since the day I was born, muscular dystrophy has given me a daily beating.

The upside?

It’s made me incredibly strong. I can take any punch life throws at me without even breaking stride.

Lost $100,000 on a business deal? No biggie. Key employee quits? Yawn. Getting audited by the IRS? Wake me up when something important happens. Next to fusing my spinal vertebrae together, shattering my legs, or nearly drowning in my own mucus, none of it is honestly that big of a deal.

This, my friends, is the advantage of pain. The more you experience, the more you can handle in the future, and the less it knocks you off your game.

The way you respond to that pain is another matter, which we’ll talk about in a moment. For now, the point I want to make is this: if you feel depressed and weak, unable to cope with the difficulties of life, it’s not because you are a flawed human being. It’s because you were unprepared for the pain you are experiencing. The problem, ironically, is that you haven’t suffered enough.

2. Unfortunate Investing Traits –  Morgan Housel

Napoleon’s definition of a military genius was “The man who can do the average thing when everyone else around him is losing his mind.”

What he meant, I think, is that most wars are lost rather than won. The final outcome is driven more by one side’s blunder than the other’s brilliance. One screw up can overwhelm a dozen smart decisions that preceded it, so even if strategy is crucial the expert is rarely preoccupied asking, “How can I be great?” The obsession is, “How can I ensure I’m at least average and never a disaster during the most important moments?”

And isn’t investing the same?…

…A few unfortunate traits that commonly prevent investors from doing the average thing:…

…An ignorance of what I’d call “normal disasters.”

If markets never crashed they wouldn’t be risky. If they weren’t risky they’d get very expensive as all potential returns were wrung out. When markets are expensive they’re fragile. And when they’re fragile they crash.

If you accept that logic – and I think it’s the punchline of all market history – you realize that huge market declines characterized as surprising and shocking and unexpected are in fact foreseeable. The timing isn’t predictable but the occurrence is inevitable. If you get caught in a period when you lose a third of your money and it stays that way for a year or two, you have not been hit by a 100-year storm; you’ve just experienced the base rate of investing, par for the course. That’s why they’re normal disasters.

Same in business. Take a group of 100 companies from nearly any industry. The odds that no more than half will still be around a generation from now are very high, not because they merged but because they went out of business. Competition is relentless and most competitive advantages die. It’s a disaster, but it’s normal and everyone should plan accordingly.

If you’re flying on an airplane, normal means everything is smooth and calm. Investing is closer to whitewater rafting. You’re going to get wet and tossed around, with a decent chance of minor injury. It’s kind of the point. Many investing blunders occur when people expect “normal” to be a period when nothing goes wrong when in fact it’s normal for things to constantly be breaking and falling apart.

It’s hard to do the average thing if you can’t accept that not only is it normal for things to break, but even frequent breakages don’t prevent great long-term growth.

3. Amazon’s Cloud King: Inside the World of Andy Jassy – Kevin McLaughlin

Mr. Jassy was not an obvious candidate to start a business that has made Amazon, in effect, a landlord for a chunk of the internet. A graduate of Harvard University—where he was an advertising manager of the Crimson, the student newspaper—Mr. Jassy is not an engineer. His passions, according to a person close to AWS, include sports, pop culture and music. As of a few years ago, he had a collection of several thousand CDs, a former colleague said. Last year, he joined the ownership group for a new, as-yet-unnamed National Hockey League franchise for Seattle.

After joining Amazon in 1997, the year of its initial public offering, he caught Mr. Bezos’ eye by writing the business plan for a new Amazon business—selling music CDs online—arguing that it was the logical next step for Amazon after book selling, another former colleague said. He later became general manager of the group.

In 2003, Mr. Bezos picked Mr. Jassy to be his technical assistant, a role that entailed shadowing the Amazon CEO in all of his weekly meetings and acting as a kind of chief of staff. While previous technical assistants had languished under the demanding Amazon leader, Messrs. Jassy and Bezos became close friends during that time and Mr. Jassy remains one of Mr. Bezos’ trusted advisers (he is on the “S-team,” a group of about a dozen Amazon executives in Mr. Bezos’ inner circle).

Mr. Jassy’s biggest break came when Mr. Bezos and Rick Dalzell, Amazon’s chief information officer at the time, tapped him to lead what became AWS. The business was an outgrowth of earlier technical work Amazon had done to let independent retailers sell goods through Amazon’s e-commerce systems.

Gradually, Mr. Jassy and others came to realize Amazon could take over the management of even more basic computing chores for outside companies, such as storage and databases, by running them inside Amazon data centers. Customers no longer had to worry about purchasing and maintaining the hardware and software needed for their applications.

The launch of its first services in 2006 coincided with the rise of a new generation of internet startups, many of them propelled by the emergence of smartphones as a platform for applications. Mr. Jassy was well attuned to the needs of these startups, most of which were happy to let Amazon run their technical infrastructure while they focused on more meaningful innovations.

“He’s able to think about things that are very complex and boil them down into a few clear action items that really matter,” said Mr. Dalzell, who left Amazon in 2007 and was one of Mr. Jassy’s mentors. “He has a unique ability to get to the essence of what’s important to customers and put that at the forefront.”

In meetings, Mr. Jassy follows Mr. Bezos’ approach of letting others speak first and then weighing in later with his feedback, a former AWS employee said. He doesn’t hold back if he feels their work isn’t up to par, but he has a softer touch than Mr. Bezos—known for his scorching criticisms—favoring “humor and gentle cajoling” to get what he wants, the person said.

Even though Mr. Jassy was the top dog at AWS, he remained mostly invisible outside Amazon. He allowed the division’s chief technology officer, Werner Vogels, a Dutch computer scientist with a knack for public speaking, to become the face of the new business, while he focused on products.

For years, Mr. Jassy was opposed to Amazon disclosing the division’s financial results, because he didn’t want competitors knowing how fast AWS was growing, according to a former employee. The parent company finally began releasing the AWS numbers in April 2015; under accounting rules, the business got so large the company could no longer conceal it.

“Andy wanted to keep them guessing,” the former employee said. “If they knew what Andy knew, they likely would have invested more earlier.”

4. How David Beats Goliath in Real Life – Josh Brown

On Wall Street, David doesn’t beat Goliath in real life – especially in a battle of brute force and liquidity.

The hedge fund industry manages $3 trillion. Private equity and real estate and venture money is even bigger than that. Funds are backed by banks and brokerages which are backed by the Federal Reserve. Get a grip on reality. This complex doesn’t lose an arms race. The money is infinite. You can’t squeeze it. It will crush you. The louder and more bellicose you are on the internet, the tighter it will squeeze back, until your head has literally popped off…

…So how does David win? David wins by avoiding Goliath and becoming a stronger, smarter, healthier, happier version of himself or herself. How?

David invests capital, time and energy in the furtherance of his or her career, not on memes and internet chatroom bullshit with other Davids…

…David focuses on the main thing under his control – how much he saves versus spends – and then allocates as much as possible to an investment portfolio….

…David diversifies broadly, and has the humility to accept the inherent unknowability of the future…

…Easier said than done. Warren Buffett once talked about the Paradox of Dumb Money. He said that the moment it realizes that it is the dumb money (and acts accordingly), it ceases to be the dumb money. Accepting your limitations isn’t the same as admitting defeat. It’s how you succeed. Because you stop playing the wrong game and start playing the right one.

5. Twitter thread on the “plumbing” that goes on behind the scenes at financial market brokerages – Compound248

Dear Media, what’s happening with RobinHood? A quick primer. This is a “plumbing” issue. It is esoteric, even for those on Wall Street. A very long thread on how the toilet is clogged. Read on

First: RH was not the only brokerage to restrict buying in $GME et al. Much of the below applies to many brokerages. I’m going to use “RH” in my writing for simplicity and because it’s the most prominent, but it’s not fair to call this a RobinHood issue, per se.

The restrictions impacted retail AND institutional players – many institutional prime brokers (“PBs”) did the same thing to their hedge fund clients. Why? Surely PBs can’t be trying to punish their own clients just to benefit Citadel. There must be something else happening… Let’s talk plumbing.

Most RH clients (& all HFs) use “margin” accounts, not “cash” accounts. RH’s sign up process nudges new customers into margin accounts by default. Whether RH should do that is worthy of discussion another day. This is a story of lending and capital.

Margin accounts are Wall Street’s way of denoting lending accounts. Practically speaking, in margin accounts, the client does NOT own *any* securities. Rather, margin account holders “own” a promise from their broker. Yay.

When an RH’er buys $GME, a whole bunch of things happen behind the scenes, all of which are the ugly plumbing of Wall Street.

6. Netflix at 200 Million: Is the Streaming Race Over? – Tien Tzuo

Netflix recently announced that it has over 200 million global subscribers, an impressive milestone. But more importantly, the company is “very close” to being free cash flow positive, despite previously forecasting a loss of up to $1 billion on the year. As Barron’s put it, “the big news was the revelation that Netflix is no longer a money pit. It’s now well on the way to becoming a cash machine.”

This is the same publication, I might add, that wrote an article called “Netflix Shares Could Dive to $45” in 2016. “Investors continue to overlook increasing cash burn and relatively modest income,” warned Barron’s. The stock is now trading at around $563.

Lots of people felt the same way back then. Do some googling and you’ll find plenty of articles with headlines like: “It’s Official: Netflix, Inc. (NFLX) Stock’s Run is OVER,” (Investor Place, 2016). Here’s another quote from Movie City News: “Netflix will be purchased by 2020… because the content issues will overwhelm their business, not too much unlike the way Netflix overwhelmed Blockbuster and the remaining mom & pop DVD/video stores.”

The bear argument against Netflix has always been that it will never be able to repay the huge amount of debt it has accrued ($16 billion at last count) to finance all those thousands of hours of content….

…That argument has now been settled. Not only does Netflix now have a significant competitive moat with attendant pricing leverage (get ready for your monthly rate to go up this year), but it’s also planning on an initial $500 million debt payment, as well as stock buybacks.

Of course, this will come as no surprise to Subscribed readers. As I noted in the book, borrowing heavily to invest in new content was simply Netflix using its recurring revenue as a competitive weapon. Unlike traditional movie production shops, Netflix starts every year with known, predictable revenue. It just made sense to use leverage, similar to a mortgage on a house, to invest in attracting new subscribers, especially if it also extended the lifetime value of their existing subscribers. That’s the beauty of a smartly run subscription model.

So now that Netflix has proven the naysayers wrong, is it all over? Has the streaming race been won? I don’t think so, not by a long shot. To paraphrase a line from The Social Network, “Two hundred million is a pretty good number. Do you know what’s an even better number? Two billion.”

7. It Feels Like the Game is Rigged – Michael Batnick

There are about a million and one different angles to consider when talking about the big story in the stock market.

The most important thing that’s happening is the deterioration of faith that people have in financial institutions. Once trust is lost, it’s almost impossible to gain it back. Memes aside, this is no laughing matter…

…You’re right, Jimmy. Insiders have advantages. I understand that it feels like parts of the system are broken. I understand that it feels unfair. I understand that it feels like the odds are stacked against you.

But I’m asking you to please reconsider.

I’m thrilled for the people that got in early and made boatloads of money. But the people who are getting in late will be left holding the bag. And when they do, they will go looking for people to blame. The “system is rigged” will be shouted out when what will really happen is the market’s inherent rejection of rewarding get rich quick strategies. If you play their game, and this is their game, you will not win. But Jimmy, if you take a long-term view, then you almost can’t lose.

---

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

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

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

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

Here are the articles for the week ending 31 January 2021:

1. Why It’s Usually Crazier Than You Expect – Morgan Housel

I want to try to explain why Gamestop went up 100-fold in the last year and why Sears never recovered. They have to do with the same force in opposite directions. It’s a force that can explain a lot of baffling trends lately, and it’s so easy to underestimate and overlook…

…Find a feedback loop and you will find people who underestimate how crazy prices can get, how famous a person can become, how hard it can be to change people’s minds, how irreparable a reputation can be, and how tiny events can compound into something huge.

They take small trends and turn them into big trends with unforeseen momentum. And they happen in every field.

If you become a good reader as a child, reading is fun. When reading is fun you do it more. When you do it more you become a better reader – on and on. The opposite is true: delayed reading ability can make reading feel like work, which can cause kids to read less, which delays reading comprehension even more.

When it doesn’t rain, there’s less evaporation, which makes the air drier, which reduces rainfall, on and on.

And, of course, feedback loops can do astounding things in business and investing…

…GameStop – whose stock is up 100-fold in the last year as a reddit message board coordinates a buying spree to hurt short sellers – is experiencing a similar thing.

The reddit campaign to push its stock up started two months ago. At first shares rose a little. That caught people’s attention, those people bought, which pushed prices up more, which caught more people’s attention – on and on – until this week when virtually every investor in America is paying attention to GameStop because it’s risen so high, and it’s rising high because every investor in America is paying attention to it. I have three friends who bought a few shares of GameStop this week “to see what happens.” They’re only doing that because the price went up. And they’re making the price go up.

Attention is hard to obtain. But once it’s achieved it can take on a life of its own, becoming self-sustaining and able to morph into something you never imagined.

2. Keith Gill Drove the GameStop Reddit Mania. He Talked to the Journal. –  Julia-Ambra Verlaine and Gunjan Banerji

The investor who helped direct the world’s attention to GameStop, leading a horde of online followers in a bizarre market rally that made and lost fortunes from one day to the next, says he’s just a normal guy.

“I didn’t expect this,” said Keith Gill, 34 years old, known as “DeepF—ingValue” by fans on Reddit’s WallStreetBets forum and “Dada” by his 2-year-old daughter. He said he didn’t set out to draw the attention of Congress, the Federal Reserve, hedge funds, the media, trading platforms and hundreds of thousands of investors…

…Mr. Gill began investing in GameStop around June 2019, he said, when it was hovering around $5 a share. Earlier that year, the game retailer was hunting for its fifth chief executive in a little over 12 months. Mr. Gill kept buying. Although he never played much besides Super Mario or Donkey Kong, he saw potential for the struggling retailer to reinvigorate itself by attracting new customers with the latest videogame consoles.

“People were doing a quick take, saying GameStop was the next Blockbuster, ” he said, a chain caught in a retail decline. “It appeared many folks just weren’t digging in deeper. It was a gross misclassification of the opportunity.”

3. Yes, a Stock Can Have Short Interest Over 100% — Here’s How – Dan Caplinger

At first glance, it might seem like you could never have more than 100% of a company’s shares sold short. Once all the shares have been borrowed, you might think there wouldn’t be any more for short-sellers to get.

Indeed, there are U.S. Securities and Exchange Commission regulations designed to prevent what’s known as “naked” short selling. With a naked short sale, the broker allows the customer to do a short-sale transaction without actually arranging to borrow the shares beforehand. This can lead to market disruptions, and while there are some exceptions to the regulations, most brokers stop regular retail customers from selling stock short if they can’t obtain shares to borrow.

However, even without a naked short sale, it’s theoretically possible for short interest to exceed 100%. The reason has to do with the nature of the short-sale transaction itself.

As an example, take a situation involving four investors. Annie owns shares of GameStop, and Annie and her broker have an agreement that allows the broker to lend Annie’s shares to short-sellers. It lends them to Bob, who subsequently sells those borrowed shares short in hopes that GameStop’s share price will fall.

An investor named Chris ends up buying those borrowed shares from Bob. However, Chris has no way of knowing that those shares have been borrowed from Annie. To Chris, they’re just like any other shares.

More importantly, if Chris has the same kind of agreement, then Chris’s broker can lend out those shares to yet another investor. Diane, another GameStop bear, can borrow those shares and sell them short.

In this example, the same shares end up getting borrowed and sold twice. The short interest volume these transactions add to the total is twice the number of shares actually involved. You can therefore see that if this happened throughout the market, total short interest would eventually exceed the number of shares outstanding and approach 200%.

This still might seem impossible, and in a sense, it is. But part of the answer lies in the fact that there are investors that don’t currently possess actual shares of GameStop but who have the same economic interest as shareholders. They have the right to get back the shares they lent at any time. When you add together the actual shares plus these “synthetic” positions in the stock, the short interest can’t exceed 100% of that larger total.

4. A Look at Compounders through the Lens of “The Intelligent Investor” – Robert Vinall

I expect everyone has a slightly different understanding of what the term “compounder” means, but generally it describes a company that can grow or compound earnings by reinvesting capital (not by raising external capital). Compounders are likely to share some or all of the following characteristics.

1. High returns on capital;
2. Profitable (on an underlying, not necessarily reported basis);
3. Large Total Addressable Markets (“TAMs”);
4. A growing competitive advantage;
5. A strong culture characterised by humility and adaptability (essential to overcome growth pains);
6. A founder who likely embodies these values;
7. And predictable, better still, recurring revenues.

This is not a definitive list, and different companies will have these qualities in different quantities, but it gives a sense of what I am driving towards. Google most certainly is a compounder; Deutsche Bank probably is not…

…Graham did not write, to my knowledge, about compounders, but he did write about what he termed “growth stocks”. He defined growth stocks as follows:

“A growth stock may be defined as one that has done this in the past and is expected to do so in the future.”

This description falls somewhat short of my definition of a compounder above; however, many of today’s compounders have certainly done well recently and look set to continue to do so in the future. I feel fairly sure that Graham would identify today’s compounders as growth companies. For the remainder of this memo, I will use the terms “compounders” and “growth companies” interchangeably, notwithstanding the obvious definitional differences.

Graham was a well-known sceptic of growth companies. In Chapter VI of “The Intelligent Investor”, Graham asks rhetorically why not simply buy the most promising-looking growth companies and let the cash roll in? Consider his response:

There are two catches to this simple idea. The first is that common stocks with good records and apparently good prospects sell at correspondingly high prices. The investor may be right in his judgment of their prospects and still not fare particularly well, merely because he has paid in full (and perhaps overpaid) for the expected prosperity. The second is that his judgment as to the future may prove wrong. Unusually rapid growth cannot keep up forever; when a company has already registered a brilliant expansion, its very increase in size makes a repetition of its achievement more difficult. At some point the growth curve flattens out, and in many cases turns downward.

Graham’s scepticism is routed in three main objections. First, few companies can sustain their growth, i.e., genuine growth companies are rare. Second, the analyst’s judgement about a company’s long-term prospects is often flawed, i.e., there are lots of false positives. Third, growth companies have high valuations, i.e., the positive long-term prospects are already priced in.

The conclusion that generations of value investors have drawn is that investing in growth companies is a mug’s game to be avoided at all costs. This is without question Graham’s opinion too; however what people miss is that his scepticism was clearly routed in the context in which he was investing. Based on the opportunity set he saw – and extensively documented in “The Intelligent Investor” – he thought the odds of successfully investing in growth companies were poor. This being the case, is it any wonder he was sceptical about doing so?

In my view, the lesson to be derived from “The Intelligent Investor” is not that investing in growth does not work, but that every generation of investors needs to figure out for itself what the odds of it working are. Graham’s approach offers an excellent framework to figure out just what those odds are.

5. Type I and Type II Charlatans – Ben Carlson

Pockets of the market are flirting with silly territory.

SPACs, IPOs, and electric vehicle companies are all sprouting up like weeds.

I’m not intelligent enough to sort through the winners and losers in these areas but the fact that there are currently winners means there will be a flood of losers to follow. That’s how these things work. When speculative investments are in demand, the supply ramps up to meet it.

And many of those losers will be pushed relentlessly by hucksters and charlatans who flock to rising markets like me to a new Tom Cruise movie.

Charlatans tend to flourish when some or all of the following characteristics are present:

• When there’s an “expert” with a good story
• When greed is abundant
• When capital becomes blind to risk
• When individuals begin taking their cues from the crowd
• When markets are rocking
• When innovation runs rampant…

…Type I charlatans are the visionaries who are more or less sincere but wind up ruining their investors anyway because they take their ideas to the extreme or fail to account for the unintended consequences of their ideas.

These false-positive charlatans are so passionate that it becomes difficult for their victims to see any downside. When you combine intellect, passion, and people in search of money and/or power, it’s easy to become blinded to potential risks.

And once a Type I charlatan gets a taste of success, it’s tough to pull in the reins when things go wrong.

Type II charlatans are the out and out fraudsters who blatantly set out to take people for all they’re worth. These hucksters are only interested in making as much money as possible and don’t care who gets hurt in the process.

These charlatans are false negatives because they lie to persuade you to part with your money. It’s difficult to see through this type of charlatan because they know exactly how to sell you. They understand human behavior and tell you exactly what you want to hear.

They move the goalposts and shift the blame when it appears they’re wrong and understand how to massage your ego to keep you in line.

Bernie Madoff is a type II.

Elizabeth Holmes likely started out as a type I and slowly morphed into a type II once she realized Theranos was never actually going to happen.

6. Twitter thread on mental models learnt from Tobi Luetke, Shopify’s CEO – George Mack

LUTKE LEARNING 1 – OPERATE ON CROCKERS LAW

Crocker is a Wikipedia editor who asked people to NEVER apologise about editing his pages.

He just wanted them to focus on making his pages BETTER.

He took 100% responsibility for his mental state. If he was offended, it’s his fault.

“Just give me the raw feedback without all the shit sandwich around it.” – Tobi 

“Feedback is a gift. It clearly is. It’s not meant to hurt. It’s meant to move things forward, to demystify something for you. I want frank feedback from everyone.” – Tobi

“If I’m insulted it’s because my brain made a decision, to implant in my memory and thoughts the idea of being insulted by that person…

I did that under my own volition. It was my own choice. My brain has assigned the power to the other person” – Tobi referencing Aurelius

LUTKE LEARNING 2 – ALWAYS BE A STUDENT TO FIRST PRINCIPLES

Tobi’s most consistent used mental model throughout his interviews is:

Global Maximum > Local Maximum

Local Maximum = Optimising a cog in the machine

Global Maximum = Optimising the machine itself

Tobi’s favorite example of FIRST PRINCIPLES is a Truck driver.

His truck was sat still for 8 HOURS on THANKSGIVING waiting for his cargo to be unloaded when he realized…

“Why not take the WHOLE trailer off the back of my ship rather than unloading + reloading each item?”

This Truck driver was called Malcolm McLean

His first principles approach created the SHIPPING CONTAINER

The results?

Global shipping costs went from $6 a tonne to $0.16 a tonne Exploding head

The most underrated entrepreneur of the last century AND the godfather of modern global trade.

7. Buried in Reddit, the Seeds of Melvin Capital’s Crisis – Michelle Celarier

For months, retail investors posting on a Reddit forum were broadcasting their intentions to take down a prominent, but reclusive, hedge fund called Melvin Capital — and doing so by buying call options on video game retailer GameStop, a stock in which Melvin had disclosed a big short bet…

…The effort to take down Melvin appears to have started late last year, and by mid-January, short sellers began noticing spikes in the price of GameStop. They suspected someone was covering — well-known short sellers Jim Chanos and Andrew Left were known to be short GameStop and had tweeted about the company.

But it wasn’t either one of those men who had earned the most ire of a popular Reddit forum, WallStreetBets, whose description reads, “like 4Chan found a Bloomberg Terminal.”

These retail investors had taken aim at Melvin, a fund headed by Gabriel Plotkin, a former portfolio manager with Steve Cohen’s SAC Capital. Cohen’s successor firm Point72 had more than $1 billion invested in Melvin’s fund, according to the Wall Street Journal.

About two months ago, a Reddit user called Stonksflyingup posted a video, with the title “GME Squeeze and the Demise of Melvin Capital” — with trial scenes from the miniseries “Chernobyl” superimposed with text asserting that “Melvin Capital got too greedy,” as well as an explanation of how a short squeeze can occur. The clip concluded with a photo of an explosion with the words “Melvin Capital” splashed across 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. Of all the companies mentioned, we currently have a vested interest in Alphabet (parent of Google) and Shopify. Holdings are subject to change at any time.

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

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

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

Here are the articles for the week ending 24 January 2021:

1. The Best Investors of All Time – Chris Mayer

Who are the best investors of all time?

You probably thought of Warren Buffett or Peter Lynch or John Templeton or other renowned money managers, past and present.

But did you think of the Walton family, the Rales brothers or Jeff Bezos?

Why not?

Yes, we tend to think of them as entrepreneurs. But they do own stakes in public companies just like any of those other investors. In this case, the public companies are Walmart, Danaher and Amazon, respectively. The returns on these stocks have been, well… let’s just say they would be the envy of nearly any traditional money manager you care to name…

…Pabrai mentioned how Sleep told him the best investors were entrepreneurs who kept stock in their businesses. If we want the best returns, why don’t we adopt the same approach as these people? Why bother with economists, Fed watching, sell-side analysts, quarterly earnings, etc. etc.? Why bother with “taking profits” “trimming the position” and the like?

I love this message and I have talked and written about it before myself. In my book 100 Baggers, I note how many of these great stocks also have a person’s name attached to them that is almost synonymous with the business — so much so that all I have to do is drop the name and you can think of the company. (I say “Bill Gates” and you say…)

As Pabrai said, no professional investor held Walmart from the IPO to, say, even 1985. We don’t know for sure, perhaps somebody did. But the point is the vast majority clearly did not. Many investors bought and sold Walmart over that time frame. Surely they would’ve been better off just sitting on the stock — as the Waltons did.

2. The Debt Question Facing Janet Yellen: How Much Is Too Much? – Kate Davidson and Jon Hilsenrath

A big question hangs over Janet Yellen this week at her confirmation hearing to become U.S. Treasury secretary: How much debt is too much?

In the past four years, U.S. government debt held by the public has increased by $7 trillion to $21.6 trillion. President-elect Joe Biden has committed to a spending program that could add trillions more in the year ahead. At 100.1% of gross domestic product, the debt already exceeds the annual output of the economy, putting the U.S. in company with economies including Greece, Italy and Japan.

When Ms. Yellen served in the Clinton administration as Chairwoman of the White House Council of Economic Advisers, she was among those who pushed for a balanced budget. Today, she has joined, cautiously, an emerging consensus concentrated on the left that more short-term borrowing is needed to help the economy, even without concrete plans to pay it back.

Central to the view is the expectation that interest rates will remain low for the foreseeable future, making it more affordable to finance the borrowing.

The Biden administration will now contend with progressives who want even more spending, and conservatives who say the government is tempting fate by adding to its swollen balance sheet. Ms. Yellen’s challenge, if confirmed, will be to keep Democrats together and persuade some Republicans to come along.

Ms. Yellen, who will be a top economic adviser to Mr. Biden, is scheduled to testify Tuesday before the Senate Finance Committee, which will vote on her nomination. She served as top White House economist in the 1990s and Federal Reserve chairwoman in the 2010s. Confirmation of Ms. Yellen as Treasury secretary would make her the first person to achieve such a trifecta of economic leadership roles.

Ms. Yellen would be managing the nation’s debt when the economic consensus has flipped. In the 1990s, economists argued that surpluses would push down long-term interest rates and encourage private-sector borrowing and investment. Government borrowing, this view held, crowded out the private sector. The strategy seemed to work. The U.S. saw an economic boom, with the longest expansion on record at the time, fueled by technology investment.

After years of low inflation and interest rates near zero, more economists say the government should be borrowing to keep the economy going because the private sector isn’t. With borrowing costs expected to remain low and the pandemic-stricken economy still weak, temporary increases in deficits aren’t only tolerable but desirable if they help strengthen the recovery, the thinking goes.

3. Anti-Usage Products: The Next Generation of SaaS Products – Gabriel Lim

“Hey Gabriel, why did you fill in N/A for Weekly Active Users in your investor report?” “Oh, we are not tracking it.” “Wait, what? Why?”

“You are a SaaS company, and you are not tracking how many of your users are logging into your platform and using it actively?”

“Yeah… here’s the thing – I don’t want people to log into my software.”

“Wait, what?”…

…Josh Elman said that the only metric that matters is how many people are using the product – https://news.greylock.com/the-only-metric-that-matters-now-with-fancy-slides-232474cf414c

This is an old paradigm from 2010 – 2019. It presupposes that if users keep logging in, and performing a certain action, then they are gaining something of value from the product. However, we wanted to break this paradigm.

The paradigm of retention = product engagement.

You see – When a product is able to work fully autonomously, and yet, able to deliver outcomes, user engagement is an anti-pattern. It’s not something that we want to optimize for.

On the contrary, I tell my product team: if our users are logging in too often, it means that our software isn’t autonomous enough, and we have to work harder to sand down the product. This is counterintuitive, and requires a leap of faith. But internalizing this logic helps us to build a better product. A product that is laser focused on solving our customers’ problems, and not faux-engagement.

4. The Bit Short: Inside Crypto’s Doomsday Machine – Crypto Anonymous

There are things in crypto right now called Tethers. To simplify a bit, Tethers are issued by a crypto company called Tether Ltd. — meaning that if Tether Ltd. says you own a Tether, then you do.

Tether Ltd. also says one Tether is worth exactly one US dollar. Can they do that? Well they say they can, because they hold $1 worth of assets for each Tether. But are those assets actual dollars? No, they are not. So what if the assets go down in value? Don’t worry; they will not. Okay, but can we at least see the assets? No, you may not.

Who in their right mind would use something like Tether? Well, the short answer is that many people use Tethers to buy Bitcoin and other cryptocurrencies. The long answer, though, is astounding — but more on that later.

Because Tether sounds exactly like a currency fraud, it may not surprise you to learn that Tether Ltd. is currently under investigation by the Office of the Attorney General for the Southern District of New York. That investigation was announced to the public on April 25th, 2019….

…On January 8th, I saw this post on Hacker News about Tether manipulating the price of Bitcoin. That shook me: I’d assumed Tether had been purged from the crypto markets, yet apparently it was still around. But how much Tether could there really be in the crypto markets? Surely not that much.

Still, I took a look. The answer, I was surprised to see, was a lot.

5. Twitter thread on the top of the oil bubble in 2008 – Sankey Research

Here’s a story about the top of the oil bubble. We were hosting our energy conference in Miami May 2008 with oil at $140/bbl and rising in a four year bull run, with oils crushing the market. I was standing at the bar in the evening speaking to Valero CEO Bill Klesse…

Looking across the bar, I could see there was a fight. Then I could see that it was adjacent to our E&P analyst Shannon Nome, a statuesque Texan blonde, so there was an issue for me directly; my colleague was stepping back on high heels in shock from a major kerfuffle.

Then I could see that two of our clients were fighting, and one staggered away from the other clutching his bleeding face saying “he eye-gouged me!”

Being as we were in a Miami Beach Hotel, one that hosted a week before a “Rap Weekend”, the security was there almost instantly…

…The argument? It was over the then-cult natgas stock, EQT.

Here’s the punchline. They were both bullish.

But Boston long only was not bullish enough for drunk NY Hedge fund guy, and it turns out, at first drunk HF guy was pushing cash into Boston’s top pocket, saying “you don’t know how to run money, here I will give you money” as Boston was nothing like bullish enough on EQT.

6. Twitter thread on useful rules of thumb to help us make decisions – George Mack

Bezos’ Razors:

• If unsure what action to take, let your 80-year-old self make it.
• If unsure who to work with, pick the person that has the best chances of breaking you out of a 3rd world prison…

…Luck Razor: 

• If stuck with 2 equal options, pick the one that feels like it will produce the most luck later down the line.

I used this razor to go for drinks with a stranger rather than watch Netflix.

In hindsight, it was the highest ROI decision I’ve ever made…

…Naval’s Razors:

• If you have 2 choices to make and it’s 50/50, take the path that’s more painful in the short term.
• If a task is worth less than your ambitious hourly rate – outsource it, automate it or delete it….

…Taleb’s Surgeon:

• If presented with two seemingly equal candidates for a role, pick the one with the least amount of charisma.

The uncharismatic one has got there despite their lack of charisma.

The charismatic one has got there with the aid of their charisma.

7. The Stock Market is Causing the Bubbles – Michael Batnick

This morning I was thinking about the environment we’re in. As a relatively young person, I’ve never experienced anything like it. So how can I say with a straight face that the stock market isn’t in a bubble? First of all, Tesla isn’t the market. Neither are SPACs. The market is the S&P 500.

The S&P 500 is rising, but not at the level that would normally be associated with “bubble,” a word that gets used way too frequently. A bubble is when investor behavior and fundamentals become completely detached from reality, all but ensuring the bubble’s popping.

Let’s look at behavior, or price. The stock market is not going parabolic. The S&P 500 is up 3.6% over the last 30 days, which is in the 76th percentile going back to 1950. Warm? Sure. Hot? Not really.

A quick look at fundamentals also doesn’t support the bubble argument. At 33x earnings, you could make the case that there is froth in the top 10 stocks. I wouldn’t argue.

But what about the other 490 companies whose stocks trade at 19.7x earnings? Cheap? No. Bubble? Come on.

There is exuberance in certain areas of the market. There can be no denying it. So the question is, how long can this go on before it infects the overall market? Actually, this might be backwards. I think some of the froth in the top 10 names, given their size, are causing all of the exuberance that we’re seeing. There is reflexivity at work, circular relationships that are causing a feedback loop.

In my opinion, there is not a bubble in the index, but there are bubbles inside of it and around it, which are being caused by froth at the top of the index itself.

---

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

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

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

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

Here are the articles for the week ending 17 January 2021:

1. Twitter thread on lessons from running a successful venture capital firm – Frank Rotman

1/26: It’s hard to produce a 3X+ #VC fund.  It’s much harder to do this consistently.  Our first 4 funds are mature enough to know where they’ll end up and all of them will handily beat this benchmark.  I reviewed our portfolio this morning and jotted down 12 notes. 

2/26: Insight 1: It’s more important to be an average investor in a target rich ecosystem than a great investor chasing windmills.  It’s been a great decade for #fintech which made our jobs easier…

…5/26: Insight 2: Winning with consistency requires discipline. Finding breakout winners is everything but how a #VC fund operates determines repeatability. What worked for us: Trusting our own insight, diligence and future casting vs. investing entirely based on team and TAM…

…8/26: Insight 3: Our best investments were in companies or themes that other investors didn’t want to bet on. Being early to a trend or a geo drove returns. Our best investments only looked good to us early on and then suddenly looked good to everyone once they scaled a bit….

…10/26: And price wasn’t what won us deals because were almost never the highest bid.  We obsessed about having a value proposition for Founders that won us the deals we were interested in.  Our 95%+ success rate paired with price discipline drove real economic return.

11/26: Insight 5: When we blindly trusted someone else’s diligence or strayed from what we new well we almost always stubbed our toe. The “hot deal with great lead investor” thesis didn’t serve us well. The farther we strayed from #fintech the worse we did.

12/26: Insight 6: Portfolio construction matters.  You need enough “at bats” in any given fund to give yourself the chance to find breakout winners.  But if you have too many investments you end up spreading the peanut butter too thin and returns will suffer.

13/26: Our first 4 funds consist of roughly 80 companies and ~25% of them will end up returning 5X+.  About half of these will return 10X+.  And 2 will return greater than 100X.  Every fund has between 1 and 3 “return the fund” investments.  N matters…

…17/26: Insight 8: Investments based on anything other than table pounding conviction sucked.  Insider rounds that extended runway sucked.  Investments justified based on their deal structures sucked.  Investments based on “the price reflects the flaws” sucked.

2. Ram Parameswaran – Internet Scale Businesses – Patrick O’Shaughnessy and Ram Parameswaran

So to be clear, when we invested in ByteDance, gosh, four years ago, they did not have TikTok, there was no TikTok. ByteDance is not an application business. What people don’t understand about ByteDance is right now everyone thinks of it as this big consumer phenomenon in the US and in China, but it wasn’t always the case. And it’s important to understand what underlies the business. First of all, the company at its core has the best machine learning and the best personalization algorithms in the world, period. One of the best. Almost to the point of in the Western world, we will call it creepy, but it works really well.

I say this with respect, it felt creepy is when we were in the testing of the old Toutiao application across five or six different phones sitting in our office in Menlo Park. I distinctly remember one of my colleagues telling me, “Man, why are you investing in this piece of crap? It’s just showing me pictures of skimpy women, skimpily clad women?” “What are you talking about? I’m seeing sports.” And it turns out that that guy clicked on a couple of pictures, because it was right there because they’re going to entice you and then the machine went off on a complete tangent of its own, and just kept showing him picture after picture and he’s like, “This is a really crappy product experience.” A couple of clicks took him down the wrong rabbit hole.

But that is what really struck us as, “My God. It’s the personalization algorithm that is so powerful here.” The machine just adjusts to your requests very, very, very quickly. So that’s number one. Number two, people don’t understand the infrastructure and the depth of hardware and software being built inside the organization. This company is one of the biggest buyers of Nvidia GPUs in the world. If you talked to the management team a few years ago, the company they would really idolize is Google. And what is special about Google? Google basically built some of the most incredible internet infrastructure for its own because the technology at the time was not enough to satisfy the volume of search queries being conducted on Google. You’ve heard all the stories about it. At its core, it is a software and machine learning-driven enterprise.

So then the question is, how do they create applications? What’s going to be interesting when ByteDance goes public next year and if you look at this company over the next four or five years is people will not quite know what to make of it. We in the Western world, look at Facebook and say we’ve got four big applications. There we got WhatsApp, Messenger, the Big Blue App, and Instagram. Google has 10 properties, Tencent has two properties. ByteDance will look like one or two properties and a bunch of rats, cats, and dogs.

And the reason why it’ll look like that is I don’t even think, unlike many companies that we’re used to in the US where you got a big visionary leader who has a view on this is the way the world looks like, Zhang Yiming, is what I call is an amazing leader, but he’s got one of the most flexible minds I’ve met in my life. And what I mean by that is, the company is on the constant edge of experimentation. At any point in time, there are probably dozens if not hundreds of experiments being run on what will work.

A couple of years ago when I met them, we were mapping out where can we pull dollars from into advertising? Because what we know is you’ve got these big platforms that scale, but the reality is, if you think about the totality of human knowledge, there are people who love Brazilian Jiu-Jitsu movies in Brazil, and in India, and in Japan and in China. We know people who love Volkswagens in Germany, and in Argentina. If you actually look at the totality of human nature, there are look-alikes in every single part of the world and Zhang Yiming was all about that. How do you unlock knowledge and interest graphs? Which is why every single application on ByteDance is based on removing friction. It is very easy to build a Toutiao piece of text, very easy to build a TikTok video, it’s very easy to do a bunch of other things. So removing friction is important.

The key point here is at any point in time there are hundreds of applications being done. This is why they had a jokes application. At one point they had an application primarily for car enthusiasts because this is all the places in the world where you see look alike audiences in different parts of the world. I cannot tell you with any confidence that I have a view on what the next big app from ByteDance is going to look like. But where we do know that consumers love to spend time is on education and gaming, outside of entertainment. So education, gaming, entertainment, and knowledge. Four places we spend most of our time staring at our phones. Knowledge, TikTok, Twitter, podcasts, entertainment, Netflix. Education, very important, especially post COVID education could be a very important time that people spend money and time. And then it comes to gaming. Gaming is just again, part of entertainment.

So where I think they are going to spend their time is education and gaming, but the reality is, we don’t know what’s actually going to take off till it takes off. It’s a culture of experimentation of once they find that something works and clicks these guys just pour growth marketing dollars on it, and they are willing to spend. In fact, one of the big criticisms of TikTok back in the day is they were spending money to acquire customers. And again, that goes against every framework and every piece of pattern recognition that we have as internet investors. But their genius was to think about consumers as e-commerce entities.

In an e-commerce company, you spend money, you acquire the customer, the customer spends money on the platform. It’s an arbitrage story. And they have the same view, “Well, let’s acquire the customer. But then we’re so good that once we acquire the person, they retain at 40, 50% six months on, and once they’re in, they spend 70 to 80 minutes in the platform, and so they can be monetized at very, very high levels.” That is the interesting part about ByteDance nobody gets, it is this experimentation model, which in three years, we don’t know what they’re going to create, but you kind of know that the culture in the company is based on building the next big thing. Once they find it, they know how to scale. If this company knows one thing well, it’s how to scale independent products.

And number three is, of course, the company always wanted to be a global company. So why that got me very excited early on is, man for the first time, we may actually have a global Chinese company, which has not happened so far. Now, unfortunately, some of their terms in the US got swatted for a few months. But again, it looks like next year, things may be back on track. But it may be the first global Chinese company. I think that’s the genius behind ByteDance that I don’t think most people quite understand because even now what I read in the media is “Oh, my God, TikTok’s so great.” And TikTok is just one piece of a huge empire that people don’t really see.

3. Fraud Is No Fun Without Friends – Matt Levine

The way a lot of financial crime works is by slow acculturation. You show up at work on your first day, bright-eyed and idealistic, and meet your new colleagues. They seem like a great bunch of people, they’re so smart and know so much and seem to be having so much fun. They go out for beers after work a lot, and sometimes they let you tag along and listen to their hilarious jokes and war stories.

During the day, they teach you how to trade Treasury futures, and it is all so exciting and high-stakes and important. You shadow one experienced trader and quickly find yourself imitating his mannerisms, looking up to him, hoping to be like him one day. “Here is where I put in some fake orders to spoof the price higher,” he says; “a little razzle dazzle to juke the algos.” “Isn’t that, uh, illegal?” you ask timidly. “Hahahaha illegal!” he replies ambiguously. You do not press the matter. Three months later you are bragging in the desk’s electronic chat room about your own big spoofing victories. As you type “lol i just spoofed em so good hope i dont go to jail” into the chat window, you feel a rush of pride; now you really fit in, you are one of them. You go out for beers that evening and you are the center of attention; everyone congratulates you and celebrates your achievements. It is a great day. Six months later you are arrested.

Now imagine the same story except that you show up at work your first day on Zoom, and your colleagues seem kinda nice but talking to them is awkward and disjointed, and you have no idea what they do after work because nobody leaves their house, but you have a Zoom happy hour once and that’s pretty awful. And there is an electronic chat room, sure, and your colleagues make jokes in the chat, but you don’t get a lot of them because they reference stuff that happened in the office, in person, before you arrived. You learn to trade Treasury futures by reading some training materials. “I just put in some fake orders to spoof the price higher,” says one experienced trader in the chat one day. You frown and reference the training materials, which say “spoofing is super duper illegal and should be reported to compliance immediately.” You shrug and send the chat transcript to compliance. Your colleague gets fired and prosecuted. He may or may not feel a sense of personal betrayal that you turned him in, but you’ll never know or care.

4. The ‘Shared Psychosis’ of Donald Trump and His Loyalists – Tanya Lewis

Scientific American asked [Brandy X.] Lee to comment on the psychology behind Trump’s destructive behavior, what drives some of his followers—and how to free people from his grip when this damaging presidency ends.

[An edited transcript of the interview follows.]

What attracts people to Trump? What is their animus or driving force?

The reasons are multiple and varied, but in my recent public-service book, Profile of a Nation, I have outlined two major emotional drives: narcissistic symbiosis and shared psychosis. Narcissistic symbiosis refers to the developmental wounds that make the leader-follower relationship magnetically attractive. The leader, hungry for adulation to compensate for an inner lack of self-worth, projects grandiose omnipotence—while the followers, rendered needy by societal stress or developmental injury, yearn for a parental figure. When such wounded individuals are given positions of power, they arouse similar pathology in the population that creates a “lock and key” relationship.

“Shared psychosis”—which is also called “folie à millions” [“madness for millions”] when occurring at the national level or “induced delusions”—refers to the infectiousness of severe symptoms that goes beyond ordinary group psychology. When a highly symptomatic individual is placed in an influential position, the person’s symptoms can spread through the population through emotional bonds, heightening existing pathologies and inducing delusions, paranoia and propensity for violence—even in previously healthy individuals. The treatment is removal of exposure.

Why does Trump himself seem to gravitate toward violence and destruction?

Destructiveness is a core characteristic of mental pathology, whether directed toward the self or others. First, I wish to clarify that those with mental illness are, as a group, no more dangerous than those without mental illness. When mental pathology is accompanied by criminal-mindedness, however, the combination can make individuals far more dangerous than either alone.

In my textbook on violence, I emphasize the symbolic nature of violence and how it is a life impulse gone awry. Briefly, if one cannot have love, one resorts to respect. And when respect is unavailable, one resorts to fear. Trump is now living through an intolerable loss of respect: rejection by a nation in his election defeat. Violence helps compensate for feelings of powerlessness, inadequacy and lack of real productivity.

5. Inflation Truthers – Ben Carlson

Every time I write about the current inflation rate or the possibility of higher inflation in the future, invariably a handful of people will comment about how high inflation is already here.

Are you serious?! Have you been to the grocery store lately?! What about the price of real estate or asset price inflation?

First of all, there is a 0.98 correlation between people who use the phrase “asset price inflation” and someone who is wrong about the markets or monetary policy.

Asset price inflation is not a thing. Risk assets generally go up over the long-term. The same is true of most real estate. In fact, that’s one of the biggest reasons to invest over the long-term — to beat inflation and keep up with or improve your standard of living.

Second of all, anecdotal price increases do not mean government statistics are somehow masking the true nature of inflation…

…But if we take away the outlier 2020 data points, the average real annual GDP growth from 2010-2019 was 2.3%. The inflation rate in that time averaged roughly 1.8% per year.

If you’re one of the conspiracy people who believe inflation has actually been running at 5-6% per year, that would assume the economy has been contracting by 1-3% per year over the past 10 years.

And if you’re a full tinfoil hat person who assumes inflation is actually 10-12% per year2, that’s like saying we’ve been in a full-blown depression and the economy has lost 80% of its value.

This is absurd and patently false but that’s the claim you’re making if you really think inflation is this high.

The United States actually had runaway inflation in the 1970s when it averaged around 7% annually. But nominal GDP was running at more than 10%because of this. Wages grew nearly 150%. This is what happens when there’s inflation.1

There are areas where prices have risen further than the average for the simple reason that this is how averages work.

One of those areas is healthcare. This is the one I sympathize with the most. For certain households, the cost of healthcare feels like it’s experienced hyperinflation.

Another is college tuition. But it’s worth remembering that just 30% or so of the population even has a college degree. It’s not like everyone is being forced to pay for that higher tuition.

And tuition rates rose roughly 180% from 1998-2019. That’s an annual rate of 4.8%, much higher than the reported inflation numbers but well below the conspiracy numbers…

…There are certainly households that feel the sting of rising prices more than others. And there are those households where people don’t realize how much their standard of living has improved over time because we become accustomed to the deflationary forces of technology.

The government isn’t suppressing the “actual” inflation number. And if they were, they would also be suppressing reported economic growth which is something no politician in their right mind would ever do.

6. 10 Things I’ll be Watching Closely in 2021 – Michael Batnick

Will value come back?

Over the last 5 years, the Russell 1000 Value Index has grown at 9% a year. Not bad, not bad at all. But when you compare it to its growth counterpart, which has grown at 21% a year, it looks downright dreadful.

Maybe we should be talking less about value being dead and more about growth being impossible to keep up with.

One of the reasons for the discrepancy in returns has to do with the difference in sector weights. Value has 29% fewer technology stocks and 26% more financials, industrials, and energy. The spread between value and growth on fundamental factors is as wide as it’s been since 1999, and on some metrics, it’s even wider. But is it actually different this time? You can’t rule it out…

…Is this the year the 60/40 finally dies?

The 10-year treasury rate began the year under 2%. Investors in the traditional 60/40 portfolio didn’t expect too much from this side of their ledger. They got it anyway. Bonds are up more than 7% this year.

The stock market started the year with a CAPE ratio north of 30, was coming off a 32% year, and had seen increases in 9 of the last 10 years. Investors couldn’t have expected too much from this side of their ledger this year. They got it anyway. The S&P 500 is up 16%.

The 60/40 is alive and well, for now. It’s hard to believe, but it gained 13% this year.

I keep telling investors to lower their expectations. Markets keep making me look ridiculous.

Where does the Dollar Go?

Maybe all that money printing is finally catching up with us. For the first time in a long time, the mighty dollar is starting to show signs of weakness. This has implications for the global economy and implications for U.S. investors.

A weaker dollar is good for gold and good for non-hedged foreign stocks. Gold quietly made an all-time high earlier in the year, and international stocks are showing signs of life, after doing a whole lot of nothing over the last decade.

International developed stocks (EFA), think Japan, United Kingdom, have only outperformed U.S. stocks once in the last 8 years. This is another one of those things that shouldn’t continue forever, but it’s hard to make the case why it wouldn’t.

7. My Close Encounter with a Conspiracy Theory – Robert Vinall

“Hey, Rob, it’s Jack here,” said an old college friend, whose name I have changed to protect his identity. “I am calling from a payphone so I cannot speak long. I am in Zurich and was wondering if you want to meet up?”

I was delighted to hear from Jack. I had not heard from him since a few years after graduating and had fond memories of our time together at college. I thought it was strange he was calling me from a payphone but figured either his phone battery was dead, or perhaps he wanted to avoid the horrendous roaming charges in Switzerland. I gave the matter no further thought.

Sooner than I expected, the doorbell rang, and Jack entered the scene at our kitchen table. He looked no different from how I remembered him and happy to see me as indeed I was to see him. He was keen to hear how I was doing, and in the first half-hour or so, I filled him in on how I had got married, started a family, moved to Zurich, etc. The conversation was relaxed, fun, and felt like we picked up where we had left off 15-odd years before.

I then asked him how he was doing. From one moment to the next, his expression changed as if a dark shadow had fallen over his face.

“You are probably wondering why I called you from a payphone,” he said. “Unfortunately, I have upset some very powerful people, and they are out to get me”.

I was totally taken aback by what Jack had said given the sudden change in the mood and the seriousness of his predicament. I immediately inquired what on earth had happened.

He then went on to recount how he had recently been fired from a high-profile job trading derivatives, in the City of London. He was unsure why he had been fired, but shortly beforehand, he had had a heated argument with his assistant. She was married to a middling official in the UK government, and Jack suspected the official was so incensed by the treatment of his wife that he was now out for revenge. Not only did he work his powerful connections to get Jack fired, but he also had Jack’s name placed on a list of suspected terrorists.

If I was initially taken aback, I was now in a state of full-blown shock. I was desperately upset about the misfortune that had befallen my friend. During my own brief sojourn in the City of London, I experienced first-hand how political large banks can be and how vindictive some individuals are if you get on the wrong side of them. I asked him to go on.

He told me that fortunately, he was financially secure as he had earned well as a trader and also received a large severance package when he was fired. He had bought a large house next door to his parents. It was a relief that he was at least financially ok. He told me that he spent a large part of the day investigating his suspicions and had turned up multiple documents as well as first-hand sources confirming that such lists exist, and he was on them. Could he really be sure all this was true, I asked, starting to feel a vague sense of unease.

“I wish it was not,” he responded.

Having exhausted all other options, he saw no other alternative other than to address himself to the highest echelons of UK society. He went to the top – David Cameron, then Prime Minister of the United Kingdom.

“Call off your lackeys,” he told me he had written to the Prime Minister “Or else there will be consequences. It would be a huge mistake to underestimate me.”.

Jack had exercised all the restraint he could muster and was running out of patience. He believed he had unwittingly uncovered a conspiracy going to the highest levels of government in which innocent victims are placed on lists of suspected terrorists and subjected to round-the-clock surveillance just to settle the petty scores of middling officials. His own treatment was just the tip of the iceberg.

“Rob, what I know has the power to bring down the entire British government and if pushed I am not afraid to use it,” he said with the look of a man who holds all the aces.

The magnitude and reach of what I was hearing were starting to get a little bit too much for me to process.

“Shortly after I sent the letter,” he went on “multiple neighbours as well as complete strangers approached me around town confirming to me that the Police were snooping around asking questions about me”.

This was the clincher argument from his perspective. It was not just people he knew – complete strangers were confirming to him his worst fears.

For me, it was the moment that the spell was broken. If you send a threatening letter to the Prime Minister of the United Kingdom, an alternative explanation sprang to my mind. Perhaps they were sending the police around to assess how great a threat he posed and how seriously to take it! I tentatively suggested to Jack this alternative explanation.

Jack would have none of it and instead recounted another story to illustrate the extreme lengths the authorities were going to pursue him. He recently booked a vacation to Mauritius in order to get as far away from things as possible and wind down. Things had started really well and he had met a beautiful girl at a bar. Finally, he had the chance to be free and have a crack at happiness. Then, ominously, he noticed two guys at a bar.

“They even followed me all the way to Mauritius,” he sighed. “That’s how far they are willing to go!”.

He even feared that the beautiful girl was a honey trap sent to ensnare him. Reluctantly, he said goodbye to the girl and returned to the UK earlier than planned.

“What I really want, Rob, is to have what you have,” he told me gesturing to the scene in my kitchen. “But they won’t let me have it.”

“Listen, Jack,” I responded, “All I know is based solely on what you have told me over the last few hours. But, based on what you have told me, I am almost certain, as certain as I possibly can be, that this is a figment of your imagination. You need to do everything in your power to rid yourself of this delusion.”

Then a shadow fell across his face again, like it had done at the beginning of his story several hours before.

“Damn!” he cried, “They managed to get to you before I could”.

---

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