All articles

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

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

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

Here are the articles for the week ending 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.

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 10 January 2021:

1. One of The Great Bubbles of Financial History – Michael Batnick

Jeremy Grantham is going for it. In his latest piece, Waiting For The Last Dance, he writes:

“I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.”

Yikes

Grantham is famous for calling the Japanese, tech, and housing bubbles. So when he speaks on this topic, investors pay attention. You can’t mention his prescient calls without mentioning the ones that didn’t come to fruition. It’s only fair to point out that he has been bearish for much of the recent bull market….

…It’s hard to argue with Grantham when he says, “a higher-priced asset will produce a lower return than a lower-priced asset.” It’s hard, but I’m going to try anyway. I have a massive amount of respect for Grantham, so I hope this does not come off as disrespectful. I’m just trying to provide an alternate view…

…One of the most popular methods that market historians use is the CAPE ratio, which I want to discuss briefly. At just under 34x, it’s the second-highest it’s ever been, behind only the tech bubble in 2000…

 …One other thing the long-term does is hide the medium long-term. Including numbers from the 1800s masks the fact that the CAPE ratio has been rising for decades, as I wrote about in 2017, “Should Stocks Be Worth More Now Than They Used to Be?

The average CAPE ratio for the entire data series is 17. But it averaged 25 in the 90s, 26.7 in the 2000s, and 25.5 in the most recent decade. We haven’t once talked about how things like low interest rates, low inflation, Fed intervention, fiscal policy, or market structure affect market behavior, but those are different stories for a different day.

At 34x on the CAPE ratio, it’s impossible to argue stocks are cheap. I won’t do that. But what if we’re looking at the wrong metric?

Ensemble Capital recently tweeted:

“The 9% long term rate of return to US equities has historically come from a 4% FCF yield and 5% growth. In the decade since 2009, there have been regular claims that we were back in a bubble, but the FCF yield suggested valuation was not stretched. This is still true today.”…

…I will go on record that I don’t think this is anywhere near like 1999 or 1929, despite what the CAPE ratio says. Are there pockets of excess? Absolutely, I’m not blind. But a 70% decline in the major averages? Sorry, I don’t see it.

2. Twitter thread on the establishment of Amazon Web Services in its early days – Dan Rose

I was at Amzn in 2000 when the internet bubble popped. Capital markets dried up & we were burning $1B/yr. Our biggest expense was datacenter -> expensive Sun servers. We spent a year ripping out Sun & replacing with HP/Linux, which formed the foundation for AWS. The backstory:…

…Amazon’s CTO was Rick Dalzell – ex-Walmart, hard-charging operator. He pivoted the entire eng org to replace Sun with HP/Linux. Linux kernel was released in ’94, same year Jeff started Amzn. 6 years later we were betting the company on it, a novel and risky approach at the time….

Product development ground to a halt during the transition, we froze all new features for over a year. We had a huge backlog but nothing could ship until we completed the shift to Linux. I remember an all-hands where one of our eng VPs flashed an image of a snake swallowing a rat

This coincided with – and further contributed to – deceleration in revenue growth as we also had to raise prices to slow burn. It was a viscous cycle, and we were running out of time as we ran out of money. Amzn came within a few quarters of going bankrupt around this time.

But once we started the transition to Linux, there was no going back. All hands on deck refactoring our code base, replacing servers, preparing for the cutover. If it worked, infra costs would go down by 80%+. If it failed, the website would fall over and the company would die.

We finally completed the transition, just in time and without a hitch. It was a huge accomplishment for the entire engineering team. The site chugged on with no disruption. Capex was massively reduced overnight. And we suddenly had an infinitely scalable infrastructure.

Then something even more interesting happened. As a retailer we had always faced huge seasonality, with traffic and revenue surging every Nov/Dec. Jeff started to think – we have all this excess server capacity for 46 weeks/year, why not rent it out to other companies?

Around this same time, Jeff was also interested in decoupling internal dependencies so teams could build without being gated by other teams. The architectural changes required to enable this loosely coupled model became the API primitives for AWS.

3. Two Worlds: So Much Prosperity, So Much Skepticism – Morgan Housel

The demand for forecasts grows after a surprise. It’s quite an irony. Surprises make you feel like you’re not in control, which is when it feels best to grab the wheel with both hands, listening to those who tell you what happens next despite being blindsided by what just happened…

…But the most important economic stories don’t require forecasts; they’ve already happened. And they tend to be the most overlooked, because when everyone’s focused on the future it’s easy to ignore what’s sitting right in front of us.

I want to tell you two of the biggest economic stories that aren’t getting enough attention.

One is that household finances might be in the best shape they’ve ever been in. Ever. That might sound crazy, and it’s easy to overlook because of the second story: Covid has dumped kerosene on wealth inequality in ways we’ve yet to fully grasp…

…Your spending is someone else’s income.

When you don’t spend, someone else gets laid off, which means they don’t spend, and someone else gets laid off, on and on.

Same thing works in the other direction. That’s why booms and busts have momentum.

And it’s why last March was such a red-alert moment for the global economy. Once spending stops due to lockdowns – and “stop” is hardly an exaggeration here – incomes collapse, and a nasty cycle takes hold.

Stimulus checks blunted the worst. Big portions of the economy figuring out how to operate with everyone working from home helped too.

But a lot of the spending still stopped. Vacations that would have been taken never happened. Weddings that would have taken place were postponed. Trips to the mall were replaced with aimlessly scrolling Twitter.

When income is replaced with stimulus checks but spending doesn’t rebound, savings surges.

Which is what happened in 2020, in an epic way.

The personal savings rate averaged 7% in the quarter-century before 2020. Then Covid hit, and overnight it went to 34%. It’s since dropped to about 14%, which would have been a 50-year high before Covid.

The result is that the amount of cash households have in the bank has absolutely exploded. I don’t even know if that word does justice. American households have $1 trillion more in checking accounts today than they did a year ago. For perspective, they held $800 billion in checking accounts a year ago. So it’s more than doubled. In one year. Benjamin Roth observed that “no one had any money” during the Great Depression. We now have so much I’ve run out of adjectives.

You begin to wonder what happens to that money once there’s widespread vaccination and the vacations, weddings, and mall trips that have been delayed are suddenly unshackled.

The best comparison might be the late 1940s and 1950s.

Then, as now, bank accounts were stuffed full as war-time spending brought record-low unemployment. And then, as now, a lot of that money couldn’t be spent because of war-time rationing.

After the war ended and life got on, the amount of pent-up demand for household goods mixed with the prosperity of war-time employment and savings was simply extraordinary. It’s what created the 1950s economic boom.

Fewer than two million homes were built from 1940 to 1945. Then seven million were built from 1945 to 1950. Commercial car production was virtually nonexistent from 1942 to 1945 as assembly lines were converted to build tanks and planes. Then 21 million cars were sold from 1945 to 1950.

4. Tweet on how nobody can foresee the future – Bill Mann

[Title of memo] Thoughts for the 2001 Quadrennial Defense Review

If you had been a security policy-maker in the world’s greatest power in 1900, you would have been a Brit, looking warily at your age-old enemy, Frane.

By 1910, you would be allied with France and your enemy would be Germany.

By 1920, World War I would have been fought and won, and you’d be engaged in a naval arms race with your erstwhile allies, the U.S. and Japan.

By 1930, naval arms limitation treaties were in effect, the Great Depression was underway, and the defense planning standard said “no war for ten years.”

Nine years later World War II had begun…

… By 1970, the peak of our involvement in Vietnam had come and gone, we were beginning detente with the Soviets, and we were anointing the Shah as our protege in the Gulf region.

By 1980, the Soviets were in Afghanistan, Iran was in the throes of revolution, there was talk of our “hollow forces” and a “window of vulnerability,” and the U.S. was the greatest creditor nation the world had ever seen…

… Ten years later [in 2000], Warsaw was the capital of a NATO nation, asymmetric threats transcended geography, and the parallel revolutions of information, biotechnology, robotics, nanotechnology, and high density energy sources foreshadowed changes almost beyond forecasting.

All of which is to say that I’m not sure what 2020 will look like, but I’m sure that it will be very little like we expect, so we should plan accordingly.

5. Deep Risk in the United States of America – Ben Carlson

One of my favorite descriptions of risk in the financial markets comes from William Bernstein in his book, Deep Risk: How History Informs Portfolio Design:

Risk, then, comes in two flavors: “shallow risk,” a loss of real capital that recovers relatively quickly, say within several years; and “deep risk,” a permanent loss of real capital. Put into different words, shallow risk, if handled properly, deprives you only of sleep for a while; deep risk deprives you of sustenance.

A few weeks after Trump was inaugurated in early 2017, I wrote a piece called Deep Risk Under President Trump. This was my conclusion:

Let’s hope shallow risk — run-of-the-mill market volatility — is the only thing we have to worry about over the next four years. But with Trump threatening countries, companies, regulations and industries, it’s worth understanding what could happen if we do experience deep risk within our financial markets.

It turns out it wasn’t the markets where deep risk resided. Markets have done just fine throughout this entire ordeal. Investors have learned to live with geopolitical risk. Markets don’t care about politics.

The real deep risk came to fruition in our democracy and the trust and faith in our government institutions.

While the stock market continues to hit new highs, our political sphere is in the midst of a great depression.

The first time I became truly terrified of this deep risk came from a Vanity Fair article by Michael Lewis in the fall of 2017.

This piece would lead to Lewis’s book, The Fifth Risk: Undoing Democracy, which detailed the neglect and mismanagement of government agencies and services by the new administration in 2017. Lewis details four risks of this neglect in the book, leaving the fifth risk open-ended.

That fifth risk is the risk that’s hard to imagine.

No one could have imagined we would experience a global pandemic in 2020.

No one could have imagined the United States would have one of the worst responses to that pandemic.

No one could have imagined the president himself would contract that disease.

No one could have imagined we would have a contested presidential election.

And no one could have imagined that same president would incite mob violence on our own Capitol Building because he refuses to admit he lost fair and square.

6. No, you did not miss a bull run – Chin Hui Leong

Here’s the thing. I have never timed my stock buys perfectly over the last 15 years of investing. And that’s not the worst thing in the world. Let me share two examples that stand out.

In February 2007, I invested in shares of a Mexican food chain, Chipotle Mexican Grill. With the benefit of hindsight, my timing was pretty bad.

In October 2007, less than 10 months after I bought the shares, the S&P 500 almost hit 1,600 points before proceeding to fall to below 700 points over the next one and half years. That’s a fall of well over 50 per cent. But my timing didn’t matter over the long run.

Today, 13 years later, those shares are up over 2,300 per cent, a satisfying return by any account. In short, it didn’t matter that I bought too early. And that’s not the only instance.

Here’s a different example.

In June 2010, I bought shares of Apple, more than a year after the stock market had bottomed out in March 2009. By then, the stock market was already up by 60 per cent from its low.

Again, the timing of my entry was off by a wide margin. But that didn’t matter in the end. Today, over a decade later, the shares have risen by over 1,200 per cent from the day I bought my first shares.

7. Twitter thread on 40 lessons on investing and life – Eugene Ng

Reflecting on 2020 with 40 Lessons on Investing and Life. Below are my reflections for 2020 in my investing journey, I hope by sharing, it might help you in many ways as it did for me as well. Here goes…

(1) You can do it.

I used to be get horrible grades in English. To write a book, self-publishing it & being an Amazon Best Seller in 5 countries (US, Canada, Australia, Germany & UK) is no mean feat. Anyone can do anything, as long as you set your mind & heart to do it…

…(3) Your Vision.

Make your portfolio reflect your best vision for your future. This drives what I do at Vision Capital through Vision Investing to invest in companies that are shaping and changing the world for the better. The companies you own, ultimately reflect who you are….

…(6) Staying in the game.

The only reason we can be in the game for the long term, because our portfolio is not concentrated & we don’t use leverage or options. It might be great 80–95% of the time, but when it bites, it will take you out of the game, that’s not what we want…

…(10) Creating Value. For Others.

The sole purpose of the book was never for fame, recognition or the money. It was to help the world invest better in the the best companies, creating a flywheel of change, capital, investors, companies, culture & a new way of investing…

…(12) Network.

Dare to ask, dare to engage, dare to try. For there is little downside, & a lot of upside if you find a new meaningful interaction. Luck & serendipity is when preparation meets opportunity. Dare to say yes sometimes. If it works out, great, if not, move on….

(13) Concentration vs Diversification.

Less than 1% of companies & a small handful of companies will drive the majority of market returns, that’s why I don’t hold a concentrated portfolio. Also because they are so many great companies & opportunities. Choose what works for you…

…(25) Gratitude.

Be grateful. Practice gratitude every day. Give thanks for the smallest things in life, the sun, the clear skies, the clean air, the greenery, the birds chirping, your loved ones, your kids, anything. There is beauty in everything.

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

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

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

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

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

1. The Airbnbs – Paul Graham

What was special about the Airbnbs was how earnest they were. They did nothing half-way, and we could sense this even in the interview. Sometimes after we interviewed a startup we’d be uncertain what to do, and have to talk it over. Other times we’d just look at one another and smile. The Airbnbs’ interview was that kind. We didn’t even like the idea that much. Nor did users, at that stage; they had no growth. But the founders seemed so full of energy that it was impossible not to like them.

That first impression was not misleading. During the batch our nickname for Brian Chesky was The Tasmanian Devil, because like the cartoon character he seemed a tornado of energy. All three of them were like that. No one ever worked harder during YC than the Airbnbs did. When you talked to the Airbnbs, they took notes. If you suggested an idea to them in office hours, the next time you talked to them they’d not only have implemented it, but also implemented two new ideas they had in the process. “They probably have the best attitude of any startup we’ve funded” I wrote to Mike Arrington during the batch…

…What we didn’t realize when we first met Brian and Joe and Nate was that Airbnb was on its last legs. After working on the company for a year and getting no growth, they’d agreed to give it one last shot. They’d try this Y Combinator thing, and if the company still didn’t take off, they’d give up.

Any normal person would have given up already. They’d been funding the company with credit cards. They had a binder full of credit cards they’d maxed out. Investors didn’t think much of the idea. One investor they met in a cafe walked out in the middle of meeting with them. They thought he was going to the bathroom, but he never came back. “He didn’t even finish his smoothie,” Brian said. And now, in late 2008, it was the worst recession in decades. The stock market was in free fall and wouldn’t hit bottom for another four months.

Why hadn’t they given up? This is a useful question to ask. People, like matter, reveal their nature under extreme conditions. One thing that’s clear is that they weren’t doing this just for the money. As a money-making scheme, this was pretty lousy: a year’s work and all they had to show for it was a binder full of maxed-out credit cards. So why were they still working on this startup? Because of the experience they’d had as the first hosts.

When they first tried renting out airbeds on their floor during a design convention, all they were hoping for was to make enough money to pay their rent that month. But something surprising happened: they enjoyed having those first three guests staying with them. And the guests enjoyed it too. Both they and the guests had done it because they were in a sense forced to, and yet they’d all had a great experience. Clearly there was something new here: for hosts, a new way to make money that had literally been right under their noses, and for guests, a new way to travel that was in many ways better than hotels.

That experience was why the Airbnbs didn’t give up. They knew they’d discovered something. They’d seen a glimpse of the future, and they couldn’t let it go.

2. How Pfizer Delivered a Covid Vaccine in Record Time: Crazy Deadlines, a Pushy CEO – Jared S. Hopkins

Even for jaded pharmaceutical scientists, what happened next was little short of miraculous. U.S. health regulators Friday night authorized the Covid-19 vaccine developed by Pfizer and its German partner BioNTech SE. The shot is already in U.K. use and will be the first given in the U.S., capping the fastest vaccine development ever in the West.

How the drugmakers pulled off the feat, cutting the typical time from more than 10 years to under one, partly stems from their bet on the gene-based technology.

As the inside story shows, it was also the product of demanding leadership, which bordered on the unreasonable. From urging vaccine researchers to move fast to pressing the manufacturing staff to ramp up, Mr. Bourla pushed employees to go beyond even their own ambitious goals to meet Covid-19’s challenge…

…BioNTech wanted to make vaccines out of messenger RNA, or mRNA, the molecules that carry genetic instructions telling cells what proteins to make.

The German company’s researchers thought they could use the genetic sequence of the coronavirus, which had recently been published, to synthesize mRNA that would instruct cells to make a harmless version of the spike protein that protrudes from the surface of the virus.

The defanged spike proteins would prompt a person’s immune system to produce antibodies that could fight off the real virus.

Unlike the months it takes to cultivate a vaccine in test tubes, designing an mRNA vaccine would be quick. BioNTech simply plugged the genetic code for the spike protein into its software. On Jan. 25, BioNTech Chief Executive Ugur Sahin designed 10 candidates himself.

The company’s researchers would create 10 more different potential coronavirus vaccines for a total of 20, each slightly different in the event one design worked better and more safely than the others.

But BioNTech, founded in 2008 and with just 1,000 employees when the pandemic hit, needed a big partner to manufacture the vaccines for human trials and potentially for people around the world.

During a March 1 phone call, Dr. Sahin proposed a coronavirus vaccine collaboration with Kathrin Jansen, Pfizer’s vaccine-research chief.

Many in pharma were skeptical of mRNA, which had been long in the making but never the basis for an approved product. Dr. Jansen, known in the industry for helping develop Merck & Co’s cervical-cancer shot Gardasil, saw promise, in large part because mRNA vaccines appeared to produce stronger immune responses than older shots.

“This is a disaster, and it’s getting worse,” Dr. Jansen told Dr. Sahin. “Happy to work with you.”

Mr. Bourla gave his go-ahead a week later, at one of Pfizer’s first leadership meetings on the program. When vaccine researchers at a follow-up meeting in mid-March forecast a coronavirus vaccine in the middle of 2021, Mr. Bourla spoke up.

“Sorry, this will not work,” he said. “People are dying.”

3. What If You Only Invested at Market Peaks? – Ben Carlson

In 2014 I wrote a piece called What If You Only Invested at Market Peaks?

It’s hard to believe it now, but many investors assumed after a massive 30%+ run-up in the S&P 500 in 2013 that a peak was imminent.

So I decided to simply run the numbers as a thought exercise on the results of an investor who only invested their money at market peaks, just before a market crash.

I was more curious than anything and unsure about what the results would show. They were surprisingly better than expected.

I didn’t put much thought into this piece but it has become by far the most widely read piece of content I’ve ever written. It’s been read nearly a million times.

It still gets tens of thousands of page views a year.

I used this example in my book A Wealth of Common Sense but have always thought this story would be even better with visuals.

So with the help of our producer, Duncan Hill, I found an illustrator1 who could turn my story about the world’s worst market timer into a cartoon.

I updated some of the numbers, did some voiceover work, got the illustration just how we wanted it and had Duncan put it all together…

…There were some lean times in there, especially in the aftermath of the Great Depression. But by and large, the long-term returns even from the height of market peaks look pretty decent.

I’m not suggesting investors are owed anything over the long-run. The stock market is and always has been a risky proposition, especially in the short-to-intermediate-term.

But if you have a long enough time horizon and are willing to be patient, the long-run remains a good place to be when investing in the stock market.

4. Barry Ritholtz and Josh Brown Won’t Predict The Market, But They’ll Talk About Anything Else. – Leslie P. Norton

Barron’s: You’re bloggers and money managers. How does that work?

Barry Ritholtz: The blogging was an attempt to correct broader errors from Wall Street and the press—that people understood what was actually going on in the world, and that their process wasn’t completely damaged by their own cognitive errors and behavioral biases. That led to optimist bias, where people think, “Hey, I could pick stocks, I can market-time.” I also recognized the academic research that [showed] it’s much, much harder to be a successful stockpicker, a market timer, or trader than it appears, and you’re better off owning the globe and trying not to get in your own way.

As the world gets more complicated, you have to be really selective with how you use technology. Sometimes, it’s a boon to investors, and other times, the gamification of trading, apps like Robinhood, are encouraging not the greatest behavior.

Josh Brown: Barry doesn’t get enough credit. We all wanted to start blogs like Barry’s. He was first to write about behavioral investing in a popular format. I worked as a retail broker at a succession of firms; I had a front-row seat for 10 years of everything not to do. I saw every horrendous mistake and swindle, and as a 20-something, I’d say, “I’m not going to do that—or that, either.”

It didn’t feel fortunate at the time, because my career was going nowhere. I was 30 years old, with a negative bank account, a mortgage, a 2-year-old daughter, and a pregnant wife. When I met Barry, I said, “Whatever you’re doing, I want to be part of it.” He said, “I don’t deal with clients. That will be your role.” In my blog, I share what I’m learning in real time. There’s always a new topic—cryptocurrency, tariffs, interest rates, the intersection of elections with markets. I try to share my own process…

…Has the pandemic altered the way you think about investing?

Brown: The thing is how outrageous the response in asset prices has been. There’s an argument to be made that the stock market is higher because of the pandemic than if 2020 had been a more routine year. It’s an affirmation of why we’re rules-based investors.

Ritholtz: Not only did you have to predict that a pandemic would occur, but you would have had to take it to the second level, which is that the Federal Reserve’s going to take rates to zero, and that Congress, which cannot agree on renaming a library, would panic and pass a $3 trillion stimulus. That’s how you get to a positive year, despite all the terrible news. We never try to guess what’s going to happen. If we’re not making forecasts, we’re not marrying forecasts.

Josh, you published a book that included 25 people’s portfolios. What was the most useful advice?

Brown: We gave people a blank sheet of paper and were very surprised that none of the chapters read like anyone else’s. Bob Seawright wrote something very poignant about an investment in a summer cottage for the family. It was a terrible investment financially, but it was one of the best investments of all time because of the memories it created. It was important for me to hear, because I work 18 to 20 hour days, and I work on Saturdays and Sundays, and I’m reading, and I’m blogging, and I’m doing podcasts. I don’t really smell the roses that much.

5. It’s the index, stupid! Our New Not-So-Neutral Financial Market Arbiters – Johannes Petry, Jan Fichtner and Eelke Heemskerk

Historically, index providers were primarily providers of information. Indices were ‘news items’, helpful for investment decisions — but arguably not essential. Actively managed funds merely used them as baselines to compare their performance, they were not expected to direct financial markets. As previously noted, the hallmark of active investors was to be different from the index — rather than being reliable, the index was there to be beaten. Hence, index providers’ decisions over the composition of their indices had relatively limited impact on financial flows — deviation from the index was a worthy risk metric. But their exact composition was not yet crucial to investors, listed companies or countries.

This changed fundamentally with the global financial crisis, which triggered two reinforcing trends: concentration, and the rise of passive investment. Together, these transformed index providers from merely supplying information to exerting power over asset allocation in capital markets.

First, the index industry concentrated — not least because banks sold non-core businesses to raise cash, as they tried to stay afloat during the financial meltdown that engulfed their industry. By 2017, the three indices S&P DJI, MSCI and FTSE Russell accounted for 27%, 26% and 25% of global revenues in the index industry, respectively.

This market concentration led to a growing power position of the few index providers that had historically positioned themselves and their brands in financial markets. With profit margins averaging between 60-70%, they operate in a quasi-oligopolistic market structure. This is because their indices are not easily substitutable, due to unique brand recognition and network externalities, e.g. through liquid futures markets based on their indices. The S&P 500, for instance, represents US blue chips like no other index. It is also the most widely tracked index globally, and S&P 500 index futures are the most traded futures contract in the world.

Second, and more importantly, the money mass-migration towards passive investments significantly increased the authority of index providers. They came to influence asset allocation in unprecedented ways, as more and more funds directly tracked the indices they own, construct and maintain. ETFs indexed to FTSE Russell indices more than doubled from US$315 billion in 2013 to US$765 billion in 2019. Meanwhile passive funds tracking MSCI indices even increased more than sevenfold between 2008 and 2020, from $132 billion to more than $1 trillion. ETFs and index mutual funds that follow S&P DJI indices increased from $1.7 trillion in 2011 to staggering $6.3 trillion in 2019. Whereas in the past indices only loosely anchored fund holdings around a baseline, now they have an instant, ‘mechanic’ effect on the holdings of passive funds.

As passive funds simply replicate an index, index providers’ decisions to change index compositions lead to quasi-automatic asset reallocations. Index providers now effectively ‘steer’ financial flows.

6. Managers at Major Index Provider, Sushi Restaurant Charged With Insider Trading – Alicia McElhaney

A senior index manager at S&P Dow Jones Indices has been charged the U.S. Securities and Exchange Commission and the Justice Department for insider trading.

According to complaints filed Monday by both entities, Yinghang “James” Yang allegedly used information that he learned on the job to help his friend Yuanbiao Chen, a manager at a sushi restaurant, trade options on companies before they were added to or removed from S&P indices…

…The scheme allegedly began in April 2019, when Yang wrote a check for $3,000 to his co-conspirator, who then deposited it in his personal bank account. Roughly a month later, the co-conspirator opened a brokerage account, the Justice Department’s complaint shows. (Chen was not named in the Justice Department complaint.)

Between June and October, Yang and Chen allegedly used the account to buy call or put options on publicly-traded companies, according to the SEC complaint. On the days of the trades, S&P would announce after hours that the same companies would be added to or removed from its indices, according to the Justice Department. The positions would then be liquidated, the Justice Department said.

Yang and Chen started small: Each of the early transactions was worth roughly $2,000 or so. For instance, on July 9, they bought T-Mobile call options at 1:25 p.m, according to the SEC complaint. At 5:15 p.m., just after markets closed, S&P announced that T-Mobile would be added to one of its indices. The next morning, Chen and Yang reportedly sold the call options, making $1,096, the SEC said…

…But in the middle of September, the trades ramped up. Just before 2 p.m. on September 26, for example, Chen bought call options for Las Vegas Sands, the SEC said. At 5:15, S&P announced the addition of the company to its indices. The reported profit? $325,956.

During that period, Chen and Yang made these types of trades on 14 occasions, the SEC said.

Then came the payout. On October 4, Chen allegedly wrote Yang three checks totaling $100,000 from the brokerage account, the complaint said. The Justice Department said Yang used this money to make credit card payments, pay off student loans, and fund his own trading activity.

In total, the duo made $912,082 on the options trading, returning 136 percent on their investments, according to the complaints.

7. The Down Under Scammer You’ve Probably Never Heard of – David Wilson

As such, it’s worth revisiting Australia’s singularly tragic version of both men: the bipolar insider trader Rene Rivkin, who after being sentenced to just nine months of weekend detention stints, sparking national gloating, killed himself in 2005. 

“Cell, cell, cell,” the lead story in The Sydney Morning Herald crowed.

If he had lived, however, Rivkin might have served more time. For one thing, he was also a suspect in a seamy murder case and the recipient of a lavish insurance payout under suspicious circumstances. And he allegedly offloaded stocks that his newsletter, the Rivkin Report, tipped. Last, despite having untold wealth hidden in the Swiss banking system, Rivkin owed the taxman millions.

His memory still casts a tailored shadow across the Australian investment landscape, because the “guru of greed” was such an epic character: a high-octane, cigar-smoking, Prozac-popping Sydney-sider dubbed “Australia’s most aggressive broker.” Some even labeled him messianic based on his grandiose claims of persecution, going so far as to compare his criminal conviction to the crucifixion of Jesus…

…Later that year the Australian investments commission charged Rivkin with insider trading for buying 50,000 Qantas Airways shares after chatting to the head of the aptly named, now-defunct Impulse Airlines. In 2003 Impulse founder Gerry McGowan testified to having told Rivkin that Australia’s flying flag carrier planned to buy his company.

In one of many plot twists, Rivkin’s mischief yielded a piddling profit. Nonetheless, Justice Anthony Whealy denied clemency….

…What drove Rivkin, Wood’s troubled boss? Jan Marshall, a scam victim advocate and educator and the chief executive of Life After Scams, says: “People start off with small risks, and as they pay off, they begin to think they are invincible. They are driven by their greed to take bigger and bigger risks.”

Almost certainly, Marshall adds, Rivkin had a sociopathic streak. That means no conscience and no concern for how others might be affected by his acts, she explains.

Hong Kong–based Dr. Anthony Dickinson, an expert on workplace psychopaths, also believes Rivkin to have been a sociopath. Unlike full-blown psychopaths, sociopaths have some empathy, he notes.

“But their sense of right and wrong is based upon the norms and expectations of their subculture,” says the neuroscience-trained psychologist.

As to why Rivkin risked all on Impulse Airlines, Dickinson suggests: “Classic case of the gambler’s fallacy” — the myth that winning streaks are inevitable. Or, more likely, Rivkin was just “upscaling” business-as-usual practices, assuming he would never be caught or could buy his way out if he was.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. We currently have no vested interest in the shares of 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 20 December 2020:

1. Last Man Standing – Morgan Housel

Let me propose the equivalent for individual investors. It might push you away trying to earn the highest returns because returns, like margins, don’t matter; generating wealth does.

Everything worthwhile in investing comes from compounding. Compounding is the whole secret sauce, the rocket fuel, that creates fortunes.

And compounding is just returns leveraged with time.

Earning a 20% return in one year is neat. Doing it for three years is cool. Earning 20% per year for 30 years creates something so extraordinary it’s hard to fathom. Time is the investing factor that separates, “Hey, nice work,” from “Wait, what? Are you serious?”

The time component of compounding is why 99% of Warren Buffett’s net worth came after his 50th birthday, and 97% came after he turned 65.

Yes, he’s a good investor.

But a lot of people are good investors.

Buffett’s secret is that he’s been a good investor for 80 years. His secret is time. Most investing secrets are.

Once you accept that compounding is where the magic happens, and realize how critical time is to compounding, the most important question to answer as an investor is not, “How can I earn the highest returns?” It’s, “What are the best returns I can sustain for the longest period of time?”

That’s how you maximize wealth.

2. The Essex Boys: How Nine Traders Hit a Gusher With Negative Oil – Liam Vaughan, Kit Chellel, and Benjamin Bain

Among the many previously unthinkable moments of 2020, one of the strangest occurred on April 20, when the price of crude oil fell below zero. West Texas Intermediate futures, the most popular instrument used to trade the commodity, had started the day at $18 a barrel. That was already low, but prices kept tumbling until, at 2:08 p.m. New York time, they went negative.

Amazingly, that meant anyone selling oil had to pay someone else to take it off their hands. Then the crude market collapsed completely, falling almost $40 in 20 minutes, to close at –$38. It was the lowest price for oil in the 138-year history of the New York Mercantile Exchange—and in all likelihood the lowest price in the millennia since humans first began burning the stuff for heat and light…

…U.S. authorities and investigators from Nymex trawled through trading data for insights into who exactly was driving the action on April 20. According to people familiar with their thinking, they were shocked to discover that the firm that appeared to have had the biggest impact on prices that afternoon wasn’t a Wall Street bank or a big oil company, but a tiny outfit called Vega Capital London Ltd. A group of nine independent traders affiliated with Vega and operating out of their homes in Essex, the county just northeast of London, had made $660 million among them in just a few hours. Now the authorities must decide whether anyone at Vega breached market rules by joining forces to push down prices—or if they simply pulled off one of the greatest trades in history. A lawyer for a number of the Vega traders vehemently denies wrongdoing by his clients and says they each traded based on “blaring” market signals…

…The pits were collegial and freewheeling, a place of ethical and regulatory gray areas. If a local overheard news about a big trade that some oil major had in the works, he might try to jump ahead of it, a prohibited but pervasive practice known as front-running. The cavernous trading floor had cameras, but there were blind spots where people went to share information. A former executive struggles to remember a single meeting of the exchange’s compliance committee.

One trick involved an instrument called Trade at Settlement, or TAS, an agreement to buy or sell a future at wherever the price ends up at the closing bell. The contract was aimed at investment funds, whose mandate it was to track the price of oil over the long term. But some traders figured out that they could take the other side of these TAS trades, then work together at the end of the day to push the closing price as low as possible so they could pocket a profit. The practice, while officially against the rules, was so common and effective it had a nickname: “Grab a Grand.”

3. Terry Smith talks big tech, fraud and ESG – Dave Baxter

[Question to Terry Smith] On Facebook (US:FB), what are your thoughts on the risks of it being broken up or more heavily regulated? More generally, is the quality of Facebook’s service deteriorating for advertisers? We ask this in light of this year’s hate speech ad boycott and recent news that the company overestimated the reach of some ad campaigns.

[Terry Smith’s response] Regulation doesn’t concern me much. Increased regulation tends to cement incumbents in place as newcomers find it hard to comply. The tobacco industry flourished for decades with tighter regulation.

I am not saying a break-up couldn’t occur, but I believe the last break-up of a company in the US forced by antitrust action was AT&T in 1984. It produced the so called Baby Bells (the offspring of ‘Ma Bell’-AT&T), which by 2018 had merged to form…AT&T. Also as an investor it’s by no means clear that a break up into its constituent parts would destroy value.

Again let’s look at the facts. The hate speech ad boycott was a non-event. Most advertisers did not participate, those who did only ‘paused’ their advertising rather than cancelling it indefinitely, and some of those who said they would boycott Facebook were, shall we say, misleading. Moreover, it is quite likely that other advertisers took advantage of the absence of their virtue signalling competitors to up their advertising spend. In its last quarter, Facebook’s revenue was up 22 per cent and ad impressions were up 35 per cent. It’s important to understand that Facebook’s advertising is more about enabling small businesses to advertise effectively than it is about the large corporate advertisers who were the ones who publicly announced their boycott, which was temporary if it happened at all.  Facebook’s top 100 advertisers only account for 16 per cent of Facebook’s revenues. I regard the recent news about Facebook overestimating the time viewers spent watching videos in the same light. Try to bear in mind when you read news about Facebook that most of the conventional media loathes and fears it in equal proportions…

…[Question to Terry Smith] Nowadays how widespread (or not) is creative accounting, and outright fraud, compared with when you wrote Accounting for Growth?

[Terry Smith’s response] I think Wirecard answers that in a single word.

4. The Daughter of a Slave Who Did the Unthinkable: Build a Bank – Jason Zweig

If Ms. Fraser has finally cracked the glass ceiling, it was Maggie Lena Walker who first battered down the walls.

The daughter of a former slave, Walker became the first Black woman ever to head a U.S. bank when she founded the St. Luke Penny Savings Bank in Richmond, Va., in 1903. Her success came from doing what great entrepreneurs do: Walker zeroed in on an underserved market and focused her prodigious energy on meeting its needs. But her story is all the more remarkable because it played out on a stage of such intense bigotry.

Her mother, Elizabeth Draper, was an illiterate teenager when Walker was born. Her father was a white Confederate soldier who, historians believe, raped Elizabeth. When Walker finished high school, her father, who still lived nearby, sent her a dress as a graduation gift. Her mother burned it.

As a girl, Walker helped her mother work as a washerwoman and soon joined her as a member of the Independent Order of St. Luke. This was a mutual-benefit society originally set up by a free woman in Baltimore that provided insurance, educational funding and other financial services to Black people after the Civil War.

After graduating high school and working three years as a teacher, Walker quickly advanced at St. Luke. She became the organization’s head in 1899, when it was on the brink of failure. Under her leadership, it blossomed to 100,000 members across 24 states.

Having grown up in a network of mothers who had to manage family finances to the penny, Walker saw the economic independence of Black women as an ethical imperative.

“Who is so helpless as the Negro woman?” she asked in a speech in 1901. “Who is so circumscribed and hemmed in, in the race of life, in the struggle for bread, meat and clothing, as the Negro woman?”

She called for St. Luke to create a department store and a newspaper—but, above all, a bank. That, she believed, was the way to uplift Black women. “Let us put our moneys together; let us use our moneys; let us put our money out…and reap the benefit ourselves,” she proclaimed. “Let us have a bank that will take the nickels and turn them into dollars.”

5. Penis Thieves & Asset Bubbles – Ben Carlson

In 2005, a man was sitting on a bus in Nigeria minding his own business when all of the sudden he let out an ear-piercing scream.

Wasiu Karimu began shouting that his genitalia had magically disappeared into his own body.

He immediately grabbed the woman seated next to him and demanded that she restore his stolen manhood at once.

Karimu continued shouting at the woman as they got off the bus which caused a commotion. The police eventually brought them down to the station to settle their dispute.

When asked to prove his claim of penis theft, the man told the police commissioner his organ had gradually returned to its rightful place.

This may sound like a case of a mentally unstable person making an outlandish claim. But thousands of people in places like Nigeria, Singapore and parts of China have experienced the phenomenon known in medical literature as koro or magical penis theft.

It’s a situation where people, mostly men, have the feeling their genitals are being sucked into their bodies. When doctors examine these patients, the men often look down and claim it had magically reappeared.

Magic penis theft is what is referred to as a culture-bound syndrome which are diseases that are more prevalent in certain societies or cultures…

…I believe culture-bound syndrome exists in the markets as well.

One of the simplest explanations offered for the continued strength of the U.S. stock market in recent years is generationally low interest rates. If there are no safe yield alternatives, investors are forced to go out further on the risk curve.

And this makes sense in theory until you realize the fact that rates are even lower in places like Europe and Japan yet they haven’t seen the same level of euphoria in their markets.

Yields for 10 year government bonds in Japan have been under 3% since 1996 and less than 1% since 2010:

Yet there hasn’t been a whiff of speculation in Japanese markets in that time.

6. Twitter thread on quotes from Charlie Munger from a recent interview – Tren Griffin

2/ “All successful investment involves trying to get into something where it’s worth more than you’re paying. That’s what successful investment is. There are a lot of different ways to find something worth more than you’re paying. You can do what Sequoia does [e.g, in VC].”

3/ “Good investing requires a weird combination of patience and aggression and not many people have it. It also requires a big amount of self-awareness about how much you know and how much you don’t know. You have to know the edge of your own competency.”

4/ “A lot of brilliant people are no good knowing the edge of their own competency. They think they’re way smarter than they are. Of course, that’s dangerous and causes trouble.” Charlie Munger…

…6/ “I don’t think we want the whole world trying to get rich by outsmarting the rest of the world. But that’s what’s happened. There’s been frenzies of speculation and so on.  It’s been very interesting, but it’s not been all good.” ..

…20/ “Early innovation by Giannini’s Bank of America helped immigrants by giving them loans. He kind of knew which ones were good for it and which ones weren’t. I think that was all for the good. That brought banking to a lot of people who deserved it.”

21/ “Bank of America helped the economy and helped everybody. Once banking got so they wanted to have soft hands and make zillions as speculators, those developments haven’t been a plus. In other words, I like banking when they’re trying to avoid losses prudently.”

7. How to Revive the Economy, and When to Worry About All That Debt – Corinne Purtill

Maya MacGuineas is head of an organization called Campaign to Fix the Debt, which is dedicated to the thesis that “America’s growing national debt profoundly threatens our economic future.” But even she says that now is not the time to worry about borrowing.

“Responsible fiscal policy is borrowing like crazy right now,” Ms. MacGuineas said. There will come a time, she said, to re-evaluate the trade-offs. In the meantime, it’s time to spend, but be aware that a pivot will be necessary at some point:

“No matter which party is in power, it’s nice to be able to enact your agenda without having to pay for it. We saw that in the four years leading up to this downturn, and I’m concerned there will be lots of voices saying we shouldn’t pay for things down the road. But I think responsible fiscal policy is borrowing like crazy right now. Things that are targeted, things that are smart, to goose the economy. But once we stabilize the economy, be willing to bring that debt back down so it’s not growing faster than the economy.”

The urgency of economic aid can’t be an excuse for programs that worsen inequality.

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