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 12 September 2021:

1. Josh Williams: Building Infrastructure Technology for Blockchain Games – Aaron Bush and Josh Williams

[Aaron Bush] What convinced you that the realm of play-to-earn and blockchain games was worth committing to? What does this underlying technology enable for the first time that made you think this was worth changing your career to focus on?

[Josh Williams] I got so excited about building Forte as an enabling platform for game developers around the world. Players around the world, including myself, spend lots of time, energy, and money in games today in the virtual worlds that they create. But, economically, games are pure entertainment experiences. All of the purchases that players make in games today, to the tune of close to $200 billion a year, are just entertainment expenditures from the players’ perspective. Even if you spend a lot of time and money in games, you don’t own anything or have any economic opportunity.

As the world becomes more digital and our experiences become more virtual, it’ll be more important to have real economies and property rights in virtual worlds just like we do in the physical world. What blockchain technology unlocks for the first time is a safe, sound, and secure way for you to be able to own digital goods. It can prove the provenance, scarcity, and ownership of goods that are purely digital.  While the cost of copying a good is negligible, you can still have a true history and provable scarcity for digital goods so that they can become commodities and have real value.

That was the big change that blockchain technology unlocked. It was so exciting to me, and I’m still excited today. I get out of bed every day to work on this stuff and hopefully pull the future forward a little bit…

…Tackling one more criticism that some people have towards blockchains in games, what would you tell those who say that you can build player-owned economies and marketplaces with more standard development tools and bypass blockchains altogether? What in your mind does a blockchain add that literally couldn’t be done without it that more developers should be excited about?

This is maybe a subtle point, but I think it’ll become increasingly clear: The big difference that blockchains enable is an open but secure database. Instead of just the game developer operating the database and being the only authority that can write to the database and authorize transactions, players themselves can own the assets. Anyone in the world can write to the database and submit bids and transactions.

The underlying innovations in blockchain are pretty powerful. This idea of an open database isn’t new. It’s been a concept in computer science for a long time. What Bitcoin and now blockchains more generally did is they introduced some mechanisms that make it possible for the first time to have this open database that anyone can write to. You can be assured that all the transactions in the database are secure and sound. That was the core innovation ten years ago, and it’s the reason why you can do things like have an open blockchain that not just a developer controls, but anyone in the world can participate in and be assured that the developer or no one can take away the digital goods that they’ve purchased…

…You mentioned that over the long-term Forte is planning to decentralize its platform and potentially even dissolve itself as a company. Is that latter part true? If so, how does that work, and how are you thinking about that playing out over time?

That’s true. We want to open up our platform. I think that we’ll create sources of value for the ecosystem over time and potentially spin out companies that provide services that are in no way proprietary, but maybe are just really important. Those things that we spin out could have revenues, profits, and operate like traditional companies (where it makes sense to do that).

Other aspects of what we do today might be split up and be purely open source technologies where anyone can contribute to them and, hopefully, also earn value for their contributions. When people in the blockchain space talk about decentralization, it’s this umbrella term. It’s like a panacea for everything, but there’s many dimensions upon which you can decentralize. We try to be super thoughtful about the way we decentralize while still providing great services for publishers and developers. How do you stand up this ecosystem that could be self-supporting and rewarding to everyone? There’s an economic reason to improve the technology, or write more code, or provide a better and faster service, or create more liquidity.

You can have these economic incentives in the system. We, or companies we create, may participate in those too, but the core principle is to make it an ecosystem, not a walled garden that only we have access to. It’s the publishers, the developers, the players, and their communities that create the value here, and we’re just creating enabling technologies and services.

If it leads to Forte dissolving and decentralizing as a company, it’s pioneering a new type of business model, especially in the realm of games. I’m curious how that jives with raising venture capital. Does Forte turn into a decentralized anonymous organization (DAO) and get tokenized? Many people in games are starting to understand how decentralization and tokenization can work on a games level, but can you elaborate more how that plays out at a company level? 

As blockchain technologies take off, they’re incorporated into more real applications that use them in fundamentally important ways. More companies will shift to trying to figure out how to best align with the underlying technology and the users either in their marketplace or on their platform. A lot of that will result in people thinking less about companies and more about decentralized organizations of various kinds.

Just to zoom out a bit, the idea of a corporation is pretty new in human history. What it is in most jurisdictions around the world is this legal construct where you can have joint ownership and a common interest, but it’s a very bounded legal entity structure. What I think is so cool about blockchain technology is it creates a new technology-oriented way to create economic organizations where anyone can participate. Even internally at Forte we really try to be careful about calling ourselves an organization, not a company. The idea over time is there may be companies that spawn in and around the ecosystem we’re creating today.

We call ourselves Forte Labs for a reason: we can create this technology, spin up businesses around it to enable the ecosystem (if necessary), but in other instances do the opposite and create technologies that anyone can use and get access to. It’s all new, and it’ll be increasingly important for many companies to think about this. There’s a lot of this research and thinking going on in the crypto space around DAOs and tokenizing things. That’s one aspect of what’s possible, and it’s sometimes (but not always) the right thing to do. However, the idea that you can incubate technologies, foster an ecosystem, and then either create companies or protocols that provide services, and create value over time, will happen more and more.

2. Inequality, Interest Rates, Aging, and the Role of Central Banks – Matthew C. Klein

Auclert et al argue that population aging—and slowing population growth—is partly responsible for the global drop in interest rates because slower population growth reduces investment. There is less reason to reward those who put off spending when there are fewer people trying to build factories, houses, or other types of capital.

This effect should only get bigger if the United Nations’ forecasts pan out:

There will be no great demographic reversal: through the twenty-first century, population aging will continue to push down global rates of return, with our central estimate being -123bp, and push up global wealth-to-GDP, with our central estimate being a 10% increase, or 47pp in levels.

In the 1960s, total population growth in the major global economies (the “high-income countries” plus China) averaged almost 2% a year. That slowed to just 1.2% a year by the 1980s, 0.9% a year by the 1990s, 0.6% a year by the 2000s, and just 0.4% by the eve of the pandemic. The combined population of these economies is projected to shrink starting in the 2030s, eventually falling nearly 20% from the projected 2030 peak by the end of the century.

Put another way, the number of children aged 0-14 in these economies fell from a peak of more than 600 million in the mid-1970s to about 465 million now. The number of children is projected to plunge almost 30% from current levels to just 335 million by 2100.

That pushes down interest rates, according to Auclert et al, because fewer people means there is less need to provide for the desires of future generations. This effect outweighs the fact that older people have much lower saving rates than everyone else. An aging society might produce less, but demand falls even further and faster. The process began in the 1980s and could continue for decades to come.

That’s consistent with what I noted almost six years ago when writing about Japan. There, population aging in the 1990s and 2000s pushed the household saving rate to zero during a period of sustained government budget deficits—yet interest rates went down. The reason was that households are only one piece of the broader economy. In Japan’s case, the decline in business investment and the rise in corporate profitability (which in turn was partly attributable to lower pay for workers) were more than enough to offset what was happening in the rest of the economy…

…Mian, Straub, and Sufi, in a paper presented at the Federal Reserve Bank of Kansas City’s Jackson Hole Economic Symposium, focus on how changes in the income distribution affect saving rates, borrowing, and consumer spending.

The key insight is that the ultra-rich are different from you and me: they have much higher saving rates regardless of their age. No matter how expensive your tastes, there’s a limit to how much you can consume, which means any income above that threshold has to get saved. The ultra-rich therefore spend relatively small shares of their income on goods and services that directly provide jobs and incomes to others, instead accumulating stocks, bonds, art, trophy real estate, and other assets.

The ultra-rich need no encouragement to refrain from buying goods and services, so any increase in income concentration should put downward pressure on interest rates. Another way to look at it is that an increase in income concentration boosts the demand for financial assets, which should push up prices and push down yields.

3. Inside Huarong Bailout That Rocked China’s Financial Elite –  John Liu, Rebecca Choong Wilkins, Kevin Kingsbury, and Ye Xie

Huarong was created after the Asian financial crisis of the ’90s to help safeguard Chinese banks. The idea was to have the “bad bank” mop up souring loans that had been made to many state-owned enterprises.

Then its longtime chairman, Lai Xiaomin, began borrowing heavily to expand into all sorts of business. Known as the God of Wealth, Lai was later swept up in a corruption scandal and then executed this past January, just as the problems at Huarong were gaining attention around the financial world.

By June, no one was under any illusions: Huarong needed help. But inside the company’s Beijing headquarters, employees were shocked by the mere suggestion that the once mighty Huarong might become just another subsidiary of some other SOE. Huarong’s decades-long ties to the Ministry of Finance conveyed status and prestige – and suggested a level of government support that, in better times, had meant cheap borrowing costs. Huarong executives were counting on some sort of government help but never dreamed their prized link to the finance ministry might be severed, according to people familiar with the matter.

And yet various regulators, driven by individual interests, couldn’t agree on who should assume responsibility for Huarong – or, more urgently, who would have to pay for it, according to people familiar with the matter. Numbers from offshore subsidiaries and onshore units were tallied again and again. It was clear Huarong had neither the time nor the money to save itself.

Central Huijin Investment Ltd., an arm of China’s sovereign wealth fund, began kicking the tires. But it was hoping the central bank would extend a loan to help finance a deal. The proposal was promptly nixed.

By late June, regulators pulled in Citic. The conglomerate is a ministerial-level financial powerhouse directly overseen by China’s cabinet, with more than $1 trillion of assets.

For nearly two months, a Citic team pored over the books at Huarong’s headquarters. Even at Citic, a Chinese company as connected as they come, the political nature of the task raised eyebrows. Huarong’s finances were so troubled and past dealings so fraught that some members of the Citic team worried they might be blamed for the mess. They wanted assurances that they wouldn’t be held responsible should higher ups take issue with any rescue plan later on, one of the people said.

The numbers, audited by Ernst & Young, were dire. Huarong had lost 102.9 billion yuan ($15.9 billion) in 2020, more than its combined profits since going public in 2015. It wrote off 107.8 billion yuan in bad investments. 

For two weeks, officials resisted signing off on the results out of concern for their own careers. But the clock was ticking: Huarong had to disclose the results, overdue for months, by the end of August or it would be deemed in technical default. The deadline was only weeks away. 

At last, terms were drawn up and the State Council, long silent about Huarong, gave its blessing to a rescue that combines a government bailout with a more market-driven recapitalization. Huarong will get about 50 billion yuan of fresh capital from a group of investors led by Citic, which will assume the Ministry of Finance’s controlling stake, people familiar have said. Huarong is expected to raise 50 billion yuan more by selling non-core financial assets. On August 18, Huarong went public with its huge losses and quickly followed up with news of its rescue.

4. How Coinbase Ventures Became One Of Crypto’s Busiest VCs—Without Any Full-Time Staff – Alex Konrad

Coinbase Ventures has backed more than 150 companies in its three years in existence, with notable companies in its portfolio from all over the crypto ecosystem like the well-funded but regulation-challenged BlockFi, non-fungible token (NFT) marketplace OpenSea, digital collectibles maker Dapper Labs, blockchain startup StarkWare and TaxBit, which recently raised funding for its crypto tax software at a $1.3 billion valuation.

Unlike some other corporate investors, Coinbase’s venture capital investments don’t come from a dedicated fund, but off its balance sheet. The company writes checks of $50,000 to $250,000 in seed rounds and larger, if necessary later on. And with its volume of deals and lack of dedicated staff, Coinbase Ventures prefers to join rounds led by other VC firms and not take board seats…

…Coinbase Ventures got its start in 2018, after Choi joined in March as head of corporate development after eight years spent in that function at LinkedIn. Meeting with cofounder and CEO Brian Armstrong, Choi says she took the job in part due to Coinbase’s willingness to aggressively consider acquisitions while still a private company. “I’m typically very skeptical of corp dev at late-stage startups,” Choi says. “Everybody says they want to do M&A, and they actually don’t—they just think they do.”

By April 2018, Choi had the idea that Coinbase should launch a program to invest in other crypto startups. Such a move wouldn’t necessarily come as a surprise considering that Armstrong’s cofounder, Fred Ehrsam, had left the previous year to cofound a crypto-focused venture capital firm, Paradigm; Coinbase also maintained close relationships with its own investors such as Union Square Ventures and Andreessen Horowitz. But the company didn’t have any venture professionals on staff; it also might face concerns, as a cryptocurrency exchange, of playing favorites with projects it backed.

Approached by Choi, Armstrong’s response was simple, she says: “Write the blog post.” Within 24 hours, Choi had drafted up a mission statement for Coinbase Ventures in such a public-facing format and published it. The company’s venture arm was now announced.

But that doesn’t mean Choi, later promoted to Coinbase’s COO and president, went on a hiring spree. Coinbase employees, many of them not only in corporate development (more mindful of acquisitions or big partnerships) but also in product and its coverage team, among others, communicate via a dedicated Slack channel. “We were, like, we’re just going to wing it with resources that exist today,” Choi says. “And it’s a labor of love. We just work on it nights and weekends.”

While Coinbase often co-invests alongside the VC firm specialists it knows, many of its potential deals come in from its employees’ activity in the broader crypto ecosystem; others are Coinbase employees striking out on their own.“There is some amazing machinery behind the traditional VC ecosystem. Ours is using Google Docs,” says Choi.

5. What’s in your mutual fund? The collapse of Infinity Q is a warning to investors – Gretchen Morgenson

Marshall Glickman is a careful investor who says he works too hard to take chances with his nest egg.

Back in 2016, his research identified the Infinity Q mutual fund as a holding that could do well even if the stock market didn’t. He slowly built up his stake in the fund, watching its performance, and felt comfortable enough to place 30 percent of his substantial savings into the fund.

“I spoke to management multiple times, including people at the fund who told me they had all their net worth in it,” Glickman said. “These guys had an incredible pedigree. This looked like a total A-team.”

Now, Glickman’s investment in the fund is frozen amid questions about how its manager valued a large swath of its assets. Facing a substantial loss, Glickman, owner of an online bookseller in Vermont, is experiencing that bull market rarity — a mutual fund collapse.

The fall of the almost $2 billion Infinity Q Diversified Alpha Fund is a reminder to investors about the risks that can lurk in their holdings and the heavy costs and frustrations that liquidating funds bring. Glickman, for one, is especially upset that the fund’s trustees have set aside $750 million of investors’ money to cover potential costs associated with lawsuits against the fund and its officials.

At least one expert said he is not surprised that the Infinity Q flop involved a portfolio loaded with exotic and hard-to-value investments. In recent years, some mutual funds have increased their stakes in such instruments, posing significant risks to investors. Infinity Q’s holdings included complex bets on interest rates, commodities, currencies and corporate defaults.

“There are few things as important to investors as knowing the value of what they own, and the [Securities and Exchange Commission] has rules designed to ensure that funds accurately reflect the real values of their financial instruments,” said Tyler Gellasch, executive director of Healthy Markets, a nonprofit organization that promotes best practices in capital markets. “Unfortunately, less than a year ago, the SEC fundamentally weakened those rules.”

The rules were changed in the waning weeks of the Trump administration. One let fund managers increase their exposure to the riskier investments favored by Infinity Q, and the other allowed for relaxed oversight of mutual fund boards when valuing those arcane investments.

There is no evidence that the rule changes triggered Infinity Q’s valuation issues.

The Infinity Q mutual fund began operations in 2014, aiming to generate returns that did not move in tandem with the overall stock and bond markets. It had A-list connections: A major investor in the fund’s manager was the family of David Bonderman, the billionaire co-founder of TPG Capital, a mammoth private-equity firm that may soon sell shares to the public for the first time.

The Bonderman ties were a selling point for Infinity Q; a presentation from last September boasted that its investors would gain access to the same “alternative investment strategies originally created” for the prosperous family.

6. Lauren Taylor Wolfe – The Modern Activist Toolkit – Patrick O’Shaughnessy and Lauren Taylor Wolfe

Patrick: [00:06:25] There’s so much to chew on there and a lot to dive into the nuance of what you’re doing. But I think it would be helpful to frame first the contrast between what Impactive aims to do versus, I’ll call it the stereotype of the activist investor, which I view as very adversarial, trying to take control of the direction of a business because you think it’s going the wrong way and change it very aggressively, sometimes removing management, etc. Could you draw a contrast for us between that style, the sort of stereotype, and what you’ll be doing and are doing at Impactive?

Lauren: [00:06:57] It’s such an important question and we’ve thought so long and hard about that question. We spent a year on gardening leave and neither Christian or I garden much. So we thought about how activism has changed, what we learned, and what were the pitfalls that we want to avoid when pursuing a strategy. And the first I would say is there’s was really a focus on short-termism and low-quality businesses. So what we observed just in our returns and studying the returns of other fellow activists were that the majority of the best returns were in higher quality businesses and when there was investing over the long run whereby those businesses can compound on themselves and be enhanced with the activist levers. The old paradigm of activism had investors pursuing change at very low-quality business or low-quality management teams and they were pursuing sort of that short term quick fix or sugar high. And that can work sometimes. You get involved in a company and quickly force them to put themselves up for sale. But ultimately, in the vast majority of times that does not work. And what the activist is left with is a large illiquid stake in a low-quality business where time is not your friend.

That has the effect of diminishing the overall returns of the portfolio. The first thing that we are evaluating when we look at any new business is we ask ourselves the four key questions. They’re around quality, valuation, time, and activism. The most important thing is that we’re backing a high-quality business where time is our friend. Those are two key distinctive changes that we make. There are a couple of other things that we learned, sort of pitfalls that we felt some activists fall into that we wanted to either avoid or really just sort of flip the approach in its head. And I think the first is having an approach of humility. It is extremely important at Impactive that we lead with the fact and the substance underlying our ideas. We try to make them as indisputable as possible. But when we engage with management teams and boards, we’re doing so with almost a private equity mentality, looking to form a partnership with those teams. And we orient our ideas really around long term sustainable value.

We try to tell CEOs we’re standing shoulder to shoulder alongside you, looking out into the horizon and thinking about how can we make your business worth 2-3x over, call it a three to four or five year period. And that is really important. In the past there were some very hostile activists that would do ton a work but not engage with the management team, write a big whitepaper, show up with a large stake and slap the whitepaper on the internet or across the table to the management team and a board, having had no engagement prior to that. Our view is that if you simply lead with engagement and share the facts and the substance and the data underlying your position, you’ll just come out with better outcomes. And also on this note, there’s been a ton of research done. I think it’s Lucian Bebchuk at Harvard did a study way back that demonstrated that almost all activist situations wind up ending up in a settlement around two years out. So why wouldn’t investors and management frankly want to avoid two years of battling and the expensive cost of proxy fights and not to mention the distraction that management has away from the business?

And then, one last thing that I think is really unique to our culture that we’re building is our approach to compensation. Many other firms or hedge funds what we see is there’s almost a PM and analyst relationship or a relationship where an individual is compensated just on his or her ideas. There’s this sort of jump ball mentality. What that leads to is a lot of politicking, a lot of competition for capital, and it also compromises returns. So at Impactive we’ve designed a compensation structure where the entire team is compensated on the overall profitability of the firm. And we believe that that leads to really a “one firm mentality” of everyone swimming in the same boat…

…Patrick: [00:29:55] I’d love to turn to the E and the S now. These are, again, two tools that have drastically risen in prominence in the last two years or so. And I’d love to hear from someone that does this hands on, not necessarily screening quantitatively for good E and S practices inside of a business, but actually trying to affect change, how you think about these as useful in a way that doesn’t just do good but also does right by the shareholders long term?

Lauren: [00:30:21] When you take a big step back, ESG improvement is about making companies more competitive in the long run. So we talk about the “impact flywheel” of stakeholder primacy ultimately leading back to greater shareholder returns in the long run. And when we come to a board with an idea around environmental, social or governance change, it is always linked to a business case which is linked to profitability. So we ask ourselves two things when we’re trying to propose and advocate ESG change. If you imagine a Venn diagram, in one circle there’s all the ESG change and company can pursue and the other circle is all the NPV positive projects a company can pursue. We only operate where those two circles overlap. And within those two circles there are usually two key questions that are answered. One, is this material to the business? So is this environmental, social, or governance angle very material to what this business actually pursues strategically? And two, will this change drive profitability and value over the long run? And the reason for that is that boards have been skeptical of ESG and they should be skeptical of ESG, and so to encourage boards and management teams to pursue this change in sustainable way, excuse the pun, you have to link it to a business case.

That’s the baseline and the premise from which we’re starting. When you think about ESG and the stakeholder when I talk about the impact flywheel and the key stakeholders, there are really three key stakeholders and constituents that we focus on. Your employees, your customers, and your shareholders. Improved ESG ultimately allows companies to attract and retain stickier customers, stickier employees, and stickier shareholders. Doing this ultimately lowers the customer acquisition costs, it lowers human capital costs, and it lowers the overall financial cost of capital. These are all structural competitive advantages. So by pursuing this ESG flywheel, we’re ultimately urging companies to become more competitive, which will then make them more profitable and make them more valuable over the long run. These are longer term changes in nature. Our view is that when we think about our vision, I’ll take a giant leap up, and over a 10 or 20 year period our vision is that, not only have we changed one company to make it the most sustainable in its industry, but if it is the most competitive and the most profitable and the most valuable, all their other competitors will have to follow suit. So not only have we changed one company, we’ve effectively changed an industry. So that’s the longer-term vision…

…Patrick: [00:32:56] I’d love to hear a bit about how this actually works in an example. I mean, it sounds sort of obvious when you put it that way, but also very hard work that takes time. And so I’d love to hear maybe one of your favorite examples from the portfolio or from a company you’ve observed just to put some real context around what these changes look like inside of a company. So I wonder if there’s an example that you’d be willing to share, whether early or deep into the process.

Lauren: [00:33:22] One of my favorite examples is one of our largest positions is in auto dealer Asbury Automotive. I don’t know if I spoke yet about it, but the three buckets that we look at with companies are companies that are undergoing a business model transition to have more predictable revenue stream, sum of the parts opportunities, and businesses that are just misunderstood. This one falls into the business model has changed and it’s not being appreciated by the public markets. 10 years or 15 years ago auto dealers, very cyclical, new car sales drove a substantial amount of their profitability. Fast forward to today and it’s become more of a razor-razorblade model and the parts and services segment of the business drives two thirds of the profitability of the business.

Now, throughout auto dealers in the US and collision centers in the US, they’re operating at about 50% utilization and it’s because there’s a huge industry-wide labor shortage around mechanics. Curious about that, we engaged with management and we sort of peeled back the onion and what we learned was that there was one key candidate pool that was being completely overlooked in the auto technician field and that was women. Women were only 2% of mechanics but there was a big interest and a growing interest from women who were interested in becoming mechanics. So when you look at the auto services field also women dominate financially. They spend $200 billion annually on parts and services and automobiles. Engaged with the company to think about how can we target your utilization issue in parts and services, which by the way is the most profitable business … It has 26% EBITDA margins, which is much higher than the rest of the business. It has highest return on incremental invested capital. How can we drive more business and utilization by attracting and retaining more women?

So they went through and exercise and they’re the first publicly listed auto dealer to offer paid maternity leave. They’re going to a four-day work week or dual-shift workday so that this important because it allows individuals to offer childcare or eldercare, these two things fall disproportionately on the shoulders of women. They’re likely adding changing rooms for women to change in, for female mechanics to change in. And they’re engaging with other notable professional mechanics who happen to be female who know how to start workshops and attract and retain more women to the space. We know from just the macro perspective is women participate in the labor force in a greater rate, productivity improves, output improves, growth improves. And we’ve seen that for instance in construction and in healthcare. So that’s an example where diversity and inclusion, which is so important, can drive substantial return.

If they can attract and retain more mechanics and more women, and they take their utilization from 50% to 55%, that’s about a 15% uplift for their overall enterprise value. So the way that we convinced this management team to really take this seriously I think was to show them the numbers and the business case around getting their labor force retention improved and getting access to a new labor pool which would take up their utilization rates.

Another area is really thinking about how to make companies more green. So we worked with Wyndham, which is our hotel company to make their offering at their hotels more green and environmentally friendly and have their franchisees really outlay capital which had immediate paybacks for the purposes of pursuing a win-win for both them, their immediate customers, the franchisees, and then the end user guests who prefer to stay at hotels that have green offerings. That is one where Wyndham could flex its muscle representing 9,000 hotels globally to get preferred pricing on things like motion sensor detectors and smart HVAC systems, which have one year paybacks that ultimately drive margin for the franchisees who are generating a higher cash on cash return that will allow Wyndham to attract more franchisees to their overall segment of hotels, their overall brand umbrella, as opposed to their competitors. And it also makes the franchisee better off because they have a higher margin rate and they’re also attracting more customers because consumer tastes and preferences have changed and people care about green programs.

7. The Tim Ferriss Show Transcripts: Vitalik Buterin, Creator of Ethereum, on Understanding Ethereum, ETH vs. BTC, ETH2, Scaling Plans and Timelines, NFTs, Future Considerations, Life Extension, and More (Featuring Naval Ravikant) (#504) – Tim Ferriss, Naval Ravikant, Vitalik Buterin

Naval Ravikant: So once you’re up to speed on that, this one will make a lot more sense, but we’re going to get right into, not what is crypto or what is Bitcoin, we’re going to get into what is Ethereum. So, how do you describe it today, Vitalik?

Vitalik Buterin: Sure. So the one-sentence explanation of Ethereum that I sometimes give is it’s a general-purpose blockchain. So this, of course, makes more sense if you already know what a blockchain is. Right? It’s this decentralized network of many different computers that are together maintaining this kind of ledger or let’s say database together. And different participants have very particular ways of plugging into that. They can sense transactions that do very particular things, but no one can tamper with the system in a way that’s outside of the rules.

And Ethereum expands on the Bitcoin approach, basically saying, well, instead of having rules that are designed around supporting one application, we’re going to make something more general purpose where people can just build their own applications and the rules for whatever applications they built can be executed, implemented on the Ethereum platform.

So one explanation that I heard one person give is that Bitcoin is like a spreadsheet where everyone only controls their own five squares of the spreadsheet, but Ethereum is a spreadsheet with macros. So everyone controls their own accounts, which is their own little piece of this universe, but then these pieces of the universe can have code and they can interact with each other, according to pre-programmed rules. And you can build a lot of things on top of that like Bitcoin builds a monetary system on top, famously Ethereum can build decentralized domain name systems, again, various decentralized financial contraptions, prediction markets, non fungible tokens, and all different schemes that people have been coming up with.

The limit for what you build is basically your own creativity, but the core difference between building an application on Ethereum versus building it on some traditional centralized platform is this core idea that once you build your application, the application does not need to depend on you or any other single person for its continued existence. And the application is guaranteed to continue running according to the rules that were specified and you do not have any ability to irregularly go in and tamper with it.

Naval Ravikant: That’s a great overview. And I liked that Excel analogy of it’s a spreadsheet with macros instead of a spreadsheet where you control your own cells. I’ll also try and articulate in a few ways that I understand it, around the edges, because I think Ethereum is one of those things that’s now quite a bit bigger than you. It probably has evolved in ways that even you didn’t fully anticipate. So in some sense, we’re discovering Ethereum and no longer just building it.

I also like to think of it as an unstoppable application platform. So a platform for building unstoppable applications, like a world computer where let’s say that we want to run very, very important computer programs where we don’t trust the computer itself and we don’t trust the other people to execute code on our behalf. Then we create a single world computer where we check the code on the machines of many, many different people all around the world who are properly incentivized to maintain a single computing state.

So if Bitcoin is a shared ledger, then Ethereum is a shared computer for the entire world to run its most important applications. So some of the applications that people are building on it are among possibly the most important applications of the future. So let’s talk a little bit about those applications, about what this trustless world computer is doing. What are the applications today that are the most common and that you’re most excited about?

Vitalik Buterin: So, first of all, I think ETH, the asset, is a cryptocurrency and in itself is an application and the first application of Ethereum. Going beyond financial things a bit, I mentioned ENS, the Ethereum Name System. So ENS, you can think of it as a decentralized name system. For example, when you go to ethereum.org, there is DNS, Domain Name System which has this big table that maintains this mapping of, well, if a person enters, if you’re on .com the server, they actually have to talk to it, to talk to the website like some particular IP address. And this DNS system that maintains this public relationship is a fairly centralized system with a very small number of servers running it. So ENS is a fully decentralized alternative that is running on the Ethereum blockchain.

And you could use it not just for websites, right? Like you can use it just for accounts. So for example, there was a messaging service called Status. In terms of what it feels like to use it, it’s a messenger, it’s similar to Telegram or Signal or WhatsApp or any of those, but the difference is that it is decentralized. And so there is no dependence on any single server or like there’s still a dependence on Status, the company, which is nice because it makes the whole thing much more censorship-resistant. It makes the whole thing just a much more guaranteed to survive regardless of what forces wish for its existence or wish against its existence in the future. And the like ENS, this is really an important part of it because, well, if you have a chat application, I need to have sub name by which I can refer to — like the users that I want to talk to. Right?

Like I wanted, so I could type in and say, I wanted to talk to the Naval and things like Telegram and Signal and WhatsApp, that mapping is generally like basically authenticated and controlled by a server. But whereas in Status, it’s all just done by the Ethereum blockchain. Right. So, that is one good example. I think of it like not financial, but still very important if you’re in an application. Now going beyond those two cases, there is a lot of more complicated things. So there is the DeFi, decentralized finance space, which is this big category that has all sorts of interesting contraptions in it. So for example, there is a prediction market. So a platform for where you can go in bet on different outcomes like who is going to win some sports game or who is going to win some particular election.

And there have been very successful prediction markets running on the Ethereum blockchain. There’s just the markets for trading between different kinds of assets. There’s what’s called synthetic assets. So, if you want to have access to some mainstream real-world asset like it’s all, or it could be one example, but you don’t have to tell us. There’s lots of other examples as well. There are versions of this that are purely virtual sort of simulated versions that exist purely within the Ethereum environments. So now there’s this entire kind of a very powerful financial tool kit that exists within the Ethereum ecosystem. On the whole, there’s just a lot of these interesting things that happen. I mean, there’s even games that are based on Ethereum. There’s a whole bunch of different things.

---

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 Docs). 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 05 September 2021:

1. Jude Blanchette on the Enduring Intellectual Puzzle of China – James Chater and Jude Blanchette

You wrote recently in Foreign Affairs about Xi’s “gamble” over the next 10 to 15 years. It was an interesting title because I don’t think the word “gamble” then appeared in the body of the text. What is Xi’s “gamble” and how does it relate to the central tensions facing China in the next 10 to 15 years you just alluded to?

If I had editorial control over the headline, I would have likely titled it: what’s driving Xi’s sense of urgency? For me, standard explanations for the Xi administration’s behavior over the past several years had fallen short in a way that was meaningful enough to bite into. Discussions about rejuvenation, or 2049, are far too abstract to be functionally meaningful in terms of how senior officials actually plan. I imagine that the idea of “rejuvenation” is about as operative in current Chinese planning as the idea of “liberty” is in terms of how the Department of Defense or White House thinks about U.S. global strategy. There may be an ideological component to articulating a set of overall values, but it won’t have much purchase in day-to-day government planning meetings or strategy sessions.

So, if I don’t think that’s really what’s driving them, then what is? And I became interested in this year 2035, which we saw as central to a proliferating number of planning and policy documents. That felt to me like a framework which authoritarian political systems, such as the one that Xi is leading, might be able to orient towards, because it’s really talking about the next 10 to 15 years, a timeline within which Xi Jinping will likely be alive and maybe still even in power. That was combined with seeing that when you start thinking about this next 10 years, first of all, a number of the long-standing challenges that China has been able to can-kick, mitigate or constrain through rapid economic growth — debt, demographics and declining productivity — are now going to come to bite in a way that they haven’t yet; and that the international environment is clearly undergoing an important shift that will constrain the development space that China has had.

With, admittedly, a little bit of analytical imagination, I then began to think this makes sense, or this explains better the drive and urgency behind the Xi administration; there’s a window of important opportunities to gain an edge in areas that the United States is either immature or distracted. But this is also a critical window for finally making headway on solving some of the challenges that previous leaders felt like they had more time on. That element of time had, to me, been missing from a lot of the strategic discussion about China; it had been more about goals. But goals absent of time are just meaningless concepts… 

…Going back to 2012-2013, do you have any sense of how this process of centralization was achieved? And from that, just how sui generis is what we have now? Who are those key stakeholders within elite politics now and are they different from the pre-Xi era?

The two dominant explanations for how Xi became so powerful, so quickly are mandate and mendacity. Mandate is the argument that if you look at where the party was by 2012, you had an almost untenable number of problems within the bureaucratic system and organizational structure. And then, throughout Chinese society, there was growing distrust [of the CCP], the role of technological tools like Weibo to foment and transmit dissent and dissatisfaction, corruption within the party, Bo Xilai, the Arab Spring, color revolutions, you name it. Xi Jinping was handed a mandate by senior leaders and retired leaders to essentially rectify the system. That gave breathing room for Xi to move in a way that Hu Jintao did not have when he could feel the breath of Jiang Zemin on the back of his neck.

The other argument is mendacity, namely, Xi Jinping leveraged that sense of crisis within the system, and moved to weaponize institutions like the CCDI [Central Commission for Discipline Inspection] to essentially asymmetrically grab power and move an agenda in a way that no-one was predicting. A combination of the two makes sense to me, insofar as he clearly had the mandate which he then pushed farther than the status quo expected. And once he had essentially figured out some of the effective tools, then began the centralization that we see today.

The reason I think the mandate explanation is insufficient is if it had been known how far Xi Jinping was going to push, then, of course, individuals like Xu Caihou and Zhou Yongkang, would never have accepted the mandate and would have raised holy hell at the beginning. You had a whole senior and sub-elite tier of the party who had their iron rice bowls smashed by Xi. And as far as we can tell, they didn’t have much by way of warning that they were targets, because if they had, you can imagine that the pushback would have been more visible and fierce than it was. 

So, it’s some combination of, never let a crisis go to waste, combined with Xi being a much more effective bureaucratic actor and far more Machiavellian once ensconced in power. This, then also transcending the mandate by a fair degree makes more sense to me as an explainer than either one of the extremes of, “Oh, it was mandate” or “Oh, it was mendacity.” Both of those have shortcomings…

…What are the long-term ramifications of this coalescing of power around Xi? What happens after Xi?

You can think about the change that China underwent after the death of Mao, which I think surprised almost everyone in how quickly — within a matter of four years or so — it moved towards official normalization of relations with the U.S., and the beginning of this extraordinary campaign of economic reform. So that’s always possible. But I think it depends on the circumstances in which whoever inherits the mantle from Xi assumes that power. On the one hand, you can imagine a leader now assuming power that no previous Chinese leaders had, because Xi Jinping has redefined what the position of the General Secretary is in China, in a way that has returned to the level of authority that it hasn’t had since Mao.

On the other hand, Mao was a singular leader who was not commanding a very strong bureaucracy. Xi has centralized power and personalized power, but at the same time, tried to reforge the Leninist organizational integrity of the Communist Party. That combination of a supremely powerful general secretary and a now far more organized Leninist party bureaucracy is a combination I don’t think we’ve seen yet in CCP history. How does a future General Secretary wield that power?

2. How Pinterest Learned to Control Cloud Costs – Kevin McLaughlin and Jeremy King 

The Information: There’s a debate going on in the enterprise tech industry about whether using cloud providers remains cost effective after a company reaches a certain scale, and whether it’s better to repatriate certain computing jobs to private data centers. Where do you stand on that?

King: The biggest barrier [is that] the switching costs are so high that it’s almost better to stay where you are if you have the ability to do it. The challenge that many companies have when they’re running their own clouds internally [is that] they haven’t invested in the ability to get the pricing [for servers and other hardware] that they need.

You need to build your own hardware, you need to be able to cycle and life-cycle your products, [and] you need to have a [platform as a service] layer that orchestrates the utilization of those resources, like you can with a cloud provider. Otherwise, you’re never going to get to the point where you’re cheaper than the cloud.

But [there are] companies that have built their own data centers—like Twitter and eBay—that have awesome teams focused on the infrastructure side. For them, switching to cloud is almost as painful as somebody going from cloud back to [private data centers]. [Editor’s note: Twitter has evolved its approach in recent years, striking deals with Google Cloud and AWS to offload more of its computing tasks to the cloud.]

I would have to build a dedicated team with a minimum of 100 people to be able to build that technology stack for us. We’re talking about a million-plus [processor] cores that run Pinterest. Just building those data centers alone and dealing with [multiple] regions, this is complicated stuff. So we’re going to stay in the cloud for the foreseeable future.

Our cloud bill is huge when you look at it. You can imagine it’s several hundred million [dollars] a year. So at some point [you start thinking,] “Hey, could I save money on these dollar amounts?” and that would be something we’d have to look into. But it’ll be several years before we even consider that.

In 2019 we reported that several top AWS customers were seeing higher-than-expected cloud bills, and Pinterest was one of the companies we mentioned. How are things today? Has Pinterest got a better handle on forecasting its capacity needs in advance?

Yeah, we have a wonderful team on this. In order to go to the cloud, there’s two things you need to worry about. Number one, you need to have a finance partner that isn’t as deep into…the way you utilize the cloud provider as the engineering teams [are]. Because you really can make big mistakes in how you utilize capabilities of the cloud that aren’t part of a discount that you’ve gotten and that sort of thing. So you really have to have a great finance partner.

Oftentimes, when people talk about the problems they’re having with cloud bills, their production environments are usually pretty well managed and they’re keeping a good eye on it. But they usually lose control over [software development and testing]. What happens is an engineer will spin up an environment, or a set of environments, and run a machine-learning program for five days, and then they’ll get the bill and go, “Oh my god, that cost $100,000 to run.”

So you really need to build some discipline internally as well that most companies don’t currently have.

3. Gabby Dizon – Mapping the Metaverse Economy – Patrick O’Shaughnessy and Gabby Dizon

Patrick: [00:03:34] We just met a few days ago, but I’ve been so damn excited for this conversation because I think you’re building one of the more interesting and different businesses in the world right now. You’re in Manila. I’m in New York. That’s the nature of things these days. I absolutely love it. Maybe just since a lot of people won’t be familiar with Yield Guild Games, you could just give an overview of what the company does today before we retrace your steps and the company’s steps back in time. I think that’s a good place to begin.

Gabby: [00:04:00] Yield Guild Games is what we call a play-to-earn gaming guild. In a way I call it similar to a world of Warcraft Guild with a balance sheet. So we were a group of gamers or set up as a bow or the central autonomous organization, and we invest in assets in different blockchain games. So Axie Infinity is the main one that we are playing in. We buy these Axies. These NFTs are used inside the games to earn some form of yield. So in this case, it’s SLP tokens. These are used by players to earn an income.

Patrick: [00:04:30] I think we need to talk about play-to-earn in some detail upfront because without that foundation, it’s going to be hard for people to follow what the hell an SLP is and why anyone cares. I’ve heard you talk elsewhere about how there’s sort of like a westward expansion happening in the digital world right now. Maybe it’s a gold rush. Maybe it’s a land grab. And there’s a lot of terms from like early physical exploration and settling that we could use in this discussion, but just talk us through what play-to-earn means, how it relates to this fun concept of the metaverse and digital assets. Give us a primer on this concept.

Gabby: [00:05:04] I guess we have to start with blockchain games, these games where some of the assets are NFTs. And because these are NFTs that earn the blockchains such as Ethereum, then the players on these assets, it’s not owned by the game anymore. And when you play these blockchain games, it reads your wallet to see what the NFTs you own and then it represents them in the game. So that’s kind of the basic layer.

And then play-to-earn is kind of a step beyond that where you are using these assets that you own to earn some kind of token reward. So for example, in Axie if I have three Axies in my wallet, I play a match inside the game and I win, I earn an SLP token and this SLP token is something that I can sync into my wallet as a token and then I can interact the DeFi world, turn it into Ether, for example, or turn it into fiat money, into dollars or Philippine Pesos, and I can go get spend up money. So in effect, I am using these games to play and then earn money so that I can then cash out in the real world.

Patrick: [00:06:08] I think we could talk about this concept of assets, because again, for some people that don’t play these games or are not spending all their time thinking about crypto or blockchain, it’s really important to understand the categories that these things might be in. What are the major ones? People probably have heard of like cosmetic purchases, cool skin in Fortnite or something. How would you categorize the major kinds of assets that exist today and may exist in the near term future?

Gabby: [00:06:32] NFTs can be generally unique assets that are inside the games that you’re playing. So they can be skins, they can be items, for example, like arm or swords. They can be unique characters inside the game. In the case of Axie, they’re like unique digital pet similar to a Pokemon. So the idea is the game generates unique kinds of assets that can then own by the player as NFTs on a blockchain which they can then own and trade with one another for value in the real world…

…Patrick: [00:12:42] One of the most interesting things that’s happening in your ecosystem as a result of your business specifically is people in the Philippines, I think in Venezuela and some other places like this, all of a sudden earning a lot more money by doing something that there’s demand for, which is whether that’s breeding these things in the game, which are valuable to people and value is value. If people want them and are willing to pay, that’s value. Obviously that can fluctuate. The Axies could tank to $5 from $500, which is something we should talk about, but talk through how this is changing people’s behavior, let’s just say in your native, the Philippines. What kind of change in earnings does it represent for people that are doing this? How many people are doing this? I’m just fascinated by how this is a new kind of job.

Gabby: [00:13:24] Right now, there are over 1 million daily active users in Axie Infinity. Probably somewhere between 40% to 50% of this is in the Philippines. So that represents hundreds of thousands of people who are now basically working in the metaverse. They’re working in Axie Infinity. And the interesting thing about this is that Axie doesn’t care whether you live in the Philippines or in America or in Venezuela. It basically pays you a flat wage depending on how much SLPs you can produce. Now you’re earning based on how good you are in the crypto economy of Axie Infinity and not based on what location you’re in.

What’s happened with the in-game economy so far is that it has produced, I would say like revenue or income opportunity for these players that are multiples of what a typical minimum wage job is in the Philippines. So for example, here in the Philippines, a minimum wage share might be $200. It’s actually a lot lower in Venezuela. I think it’s like $50, and people are earning maybe somewhere between $500 to $1,000 a month playing Axie Infinity. And that’s just really changed a lot of lives where people have had this scale that they didn’t think was worth any money, this gaming scale. A lot of us have gaming scale and we’ve become pretty good at it growing up.

We never really thought it was a scale that could be monetized and now they’re finding out that the scale that they’ve earned in their teenage years that their moms have yelled at them for is actually a skill that can be monetized by playing these play-to-earn games. And the result is astounding of people who are jobless or have held down minimum wage are earning like three, four or five times the amount that they used to.

Patrick: [00:15:04] I think that this is a topic in our conversation that we need to linger on because I want to understand how this might look five years from now in good and bad ways. So, first of all, who can argue with the fact that people that were making $200 are now making $1,000 and at scale like you mentioned? That maybe a hundred thousand or more people in the Philippines whose lives have changed as a result of this. I want to understand what drives the durability of that opportunity. So in crypto, as everyone knows that’s listening, there’s a lot of volatility. Assets go very high, then they can crash very low. This happens over and over again. If let’s just say an Axie goes from being worth, a team of Axies goes from being worth $1,000 to being worth $10, what happens? Do other games spring up? What are the risks to the pool of demand that creates these jobs and the flow of capital that creates these jobs? What are the opportunities? What do you think this looks like in five years?

Gabby: [00:15:57] The way to think of each play-to-earn game is that in a way it’s its own self-contained economy. We even call them like digital nations, which means that people go there to play to work. There must be people who are investing something inside the game economy for people to do some kind of work unit and take something out. So in Axie, it’s breeding that creates these because you need these Axies to come in and create the SLP, but long-term, there needs to be many different reasons why people would put money in the game. For example, are there sponsorships? Are brands willing to put money in the game and maybe sponsor prizes for people to do tournaments? Right now the economy of Axie Infinity is based on new user growth because every new user that comes in has to buy three Axies, which means that the breeders are making money selling Axies to these users coming in.

Of course, at some point we don’t know whether it’s one year, two years, five years, the new user growth will slow down and there needs to be spending like currency users inside the game or external parties such as maybe brands, for example, who would want to advertise or give prizes to the population of the people in that game. So in a way, I even think of each game economy as having its own GDP. So that’s why we talked about settling the metaverse or settling this digital dimensions. In a way, these people are, I may be in the Philippines and then I go to this online game to start working and I’m not in my local economy anymore. I’m now in the economy of this game or virtual world. And I perform actions there that I earn value and then I take that money home, be it SLP or whatever kind of game currency, and then I take it out back as Philippian Pesos.

So it’s actually not that different from a migrant worker from the Philippines that has to go to America or to Europe to earn a higher living wage and then take that money back home, except I’m going to these different video game worlds instead.

4. The Barings collapse 25 years on: What the industry learned after one man broke a bank – Elliot Smith

Exactly 25 years ago, Britain’s oldest investment bank, which listed Queen Elizabeth II among its clients, was declared insolvent.

The collapse of Barings Bank was caused by colossal losses incurred by a single rogue trader.

Nick Leeson, the bank’s then 28-year-old head of derivatives in Singapore, gambled more than $1 billion in unhedged, unauthorized speculative trades, an amount which dwarfed the venerable merchant bank’s cash reserves.

Leeson’s assignment in Singapore was to execute “arbitrage” trade, generating small profits from buying and selling futures contracts on the Japanese Nikkei 225 in both the Osaka Securities Exchange and the Singapore International Monetary Exchange.

However, rather than initiating concurrent trades to capitalize on small differences in pricing between the two markets, he retained the contracts in the hope of creating much larger profits by betting on the rise of the underlying Nikkei index.

He had made vast sums for the bank in previous years, at one stage accounting for 10% of its entire profits, but the downturn in the Japanese market following the Kobe earthquake on January 17, 1995 rapidly unraveled his unhedged positions.

Through manipulating internal accounting systems, Leeson was able to misrepresent his losses and falsify trading records.

This enabled him to keep the bank’s London headquarters, and the financial markets, in the dark until a confession letter to Barings Chairman Peter Baring on February 23, 1995, at which point Leeson fled Singapore and kickstarted an international manhunt. Three days later, Britain’s oldest merchant bank, founded in 1762, ceased to exist.

Leeson was eventually captured and sentenced to six and a half years in jail in Singapore after pleading guilty to two counts of “deceiving the bank’s auditors and of cheating the Singapore exchange.”

One of the most glaring regulatory errors the bank made was having the same man at the helm of both the derivatives trading desk and the clearing, settling and accounting operation.

ACA Compliance Chief Services Officer Carlo di Florio, a former senior executive at both FINRA (Financial Industry Regulatory Authority) and the U.S. Securities and Exchange Commission (SEC), said this convergence of duties was tantamount having “the fox guarding the hen house.”

5. What It’s Like to Inherit Billions in Your Twenties – Hallam Bullock

At an age when most teenagers are swapping trading cards, Tyler Huang was involved in his father’s bid to buy a British football club. If they wanted to, his family could make a Monopoly board of London, purchasing properties on the roll of a dice. Tyler himself has the means to dine on wagyu for every meal. He is, if it wasn’t already obvious, unbelievably rich…

…Huang, who is now 23, inherited billions earlier this year when his parents died. But if you were to pass him on the street, you’d see a young man indistinguishable from any other, loafing around in his Crocs, head down, texting and tweeting as he walks.

Huang grew up in Knightsbridge, London, overlooking Hyde Park. “I was raised primarily by staff – maids, butlers, nannies,” he says. He spent most of his childhood in an isolated orbit, cushioned from the outside world by private jets, luxury homes and his family’s workforce. “As a kid, I never played with toys much,” he tells me. “Dad collected cars, so I used to spend a lot of my free time taking vintage cars out.”

Huang grew up with not one but two AMEX Centurion cards – one of the most exclusive credit cards in the world: “My mother gave me one for emergencies, and my father gave me another for anything else.”…

…Again, while that might sound like a privilege – and it absolutely is: you have to be massively privileged to even qualify for one – Huang believes that placing the power of unlimited spending in the hands of a teenager ultimately wasn’t the best idea.

“I wish I didn’t grow up with those cards, then I’d be able to understand how to appreciate money and others,” he says, before recalling a phone call he had with his father at the age of 16: “He called me up one morning when I was hungover and we laughed about the money I’d spent over the weekend – I didn’t remember much, but it turns out I got drunk and rented a yacht in Bangkok.” 

Huang doesn’t recall this with a smirk or a sense of satisfaction, but with shame. “You would think, as a kid, never having to look at a price tag would be great – but it’s actually quite scary,” he says. Even as a child, he noticed his homes were surrounded by CCTV and security teams. “I knew what they were for – my parents didn’t like to attract attention, but there was always a sense of danger.” 

For Huang, an attempted kidnapping or burglary was something to be prepared for. His drivers were trained to escape criminals and, if he wanted, his father could arrange an entourage for him to get ice cream. “As a child, it’s terrifying,” he says. “When your father runs background checks on your friends’ families, it’s a reminder of just how different you are.”… 

…Huang feels his mother measured the value of his life primarily by his academic performance. Concerned by her son’s half-hearted approach to his studies, she sent him to a psychiatrist, where he was diagnosed with clinical depression, autism and Asperger’s. Huang says his mother treated the diagnoses like a pick-and-mix, seeing his autism as an indication he was “gifted”, but rejecting the depression as him being “lazy and difficult”…

…When Huang finished school, he began serving in mandatory active duty as a full-time national serviceman in Singapore. However, at the age of 19, doctors found a glioblastoma – a grade 4 brain tumour – in his left frontal lobe, and he was discharged from the military. He was reluctant to tell his friends about his diagnosis, but in the space his silence made, speculation thrived and he was considered a “white horse” – someone who could escape military service through their family connections.

Following his discharge, Huang began showing real promise in the field of architecture. For a while, his mental and physical health problems sank to the bottom of his mind, but before long his depression would again break the surface.

Huang lost his brother to a car accident in 2017, his mother to cancer in 2020 and his father to another car accident in February of this year. Today, his depression is the most violent it has ever been. He has stepped back from his career in architecture, after his health conditions left him unable to work. Huang’s cancer is terminal, but he continues to receive treatment and has outlived his doctor’s five-year estimation from when the tumour was first discovered.

He consumes three pills for breakfast, 12 for lunch and eight for dinner. His other routines are more or less the same every day: when he wakes up, Huang likes to spend as little time as possible at his Singapore apartment. When he’s outside, the hustle and bustle of the street scatters his dark thoughts. It’s for this reason that he likes to spend time in public places. A rooftop bar is one of his favourite daily pilgrimages, where he sits with his laptop, girdled by life and laughter.

One evening, he calls me while he’s there, surrounded by plates of oysters, scallops, champagne bottles and a thinly sliced beef dish that is woven so intricately around itself, it looks at first like a decorative centrepiece for the table. As we speak, the sun is setting over Singapore, and it seems to me like the perfect way to spend an evening.

“It isn’t,” Huang says. “I’m all alone – I always am.”

6. Cancer’s ‘Achilles’ heel’ discovered by scientists – Study Finds

Scientists may be one step closer to defeating cancer after finding what researchers at the University of British Columbia call the disease’s “Achilles’ heel.”

Their study has uncovered a protein that fuels tumors when oxygen levels are low. It enables the cancerous growths to adapt and survive and become more aggressive.

The enzyme, called CAIX (Carbonic Anhydrase IX), helps diseased cells spread to other organs. It could hold the key to new treatments for the deadliest forms of the disease, including breast, pancreatic, lungs, bowel, and prostate cancers.

“Cancer cells depend on the CAIX enzyme to survive, which ultimately makes it their ‘Achilles heel.’ By inhibiting its activity, we can effectively stop the cells from growing,” says study senior author Professor Shoukat Dedhar in a university release.

The findings, published in the journal Science Advances, will help researchers develop drugs that destroy solid tumors. These are the most common types that arise in the body. They rely on blood supply to deliver oxygen and nutrients which help tumors grow.

As the tumors advance, the blood vessels are unable to provide enough oxygen to every part. Over time, the low-oxygen environment leads to a buildup of acid inside the cells. They overcome the stress by unleashing proteins, or enzymes, that neutralize the acidic conditions.

This process is behind the spread, or metastasis, of cancer cells to other organs — which is what can kill patients. Finding a way to prevent cancer from metastasizing is the “Holy Grail” of cancer research. One of the enzymes which appears to do this is CAIX.

The Canadian team previously identified a unique compound known as SLC-0111 as a powerful inhibitor. It is currently being tested in clinical trials. Experiments in mice with breast, pancreatic, and brain cancers revealed its effectiveness.

7. How Learning Happens – David Perrell

Enjoyable learning begins with inspiration—both to get you started and to help you push through the struggles of knowledge acquisition. The way I see it, the need for inspiration inverts the learning process: instead of starting with the building blocks and moving toward curiosity, students start with curiosity and move towards the building blocks. Guided by the light of inspiration, the benefits of memorization become self-evident, and the motivation to learn comes intrinsically.

My teachers didn’t give inspiration the respect it deserves. Too often, they dove straight into the test material before they sparked a flame of desire in us. I still remember learning about the Doppler effect because my junior year astrophysics teacher taught it so well…

…Instead, he started by making the subject come alive.

First, he gave us context: how the Doppler effect shows up in our lives. You experience it whenever an ambulance passes by, he said. Because of the Doppler effect, the sirens have a higher pitch when they’re coming towards you and a lower one as they drive away. The change in pitch reflects the change in wavelength created by the siren. He didn’t stop there. He told us how astrophysicists use this formula to measure how fast the universe is expanding. Together, these stories are so deeply embedded in my mind that I still think of them a decade later whenever I hear an ambulance pass by.

Inspiration is a uniquely human experience because it isn’t motivated by mere survival. It transcends the world of needs and lives in the world of wants. By doing so, inspiration stirs the mind. It’s no coincidence that the etymology of inspire is linked to “the breath of life.” As the sparkle of inspiration enters our bodies, we are animated with a video game style turbo-boost. Though a state of perpetual awe is the natural state for kids (which is why they learn so fast), it’s foreign to most adults. Too often, the wrinkles of age and the weight of responsibility silence the rush of epiphany.

Blinded by age, we can turn to cold rationality, valuing only what we can define and prioritize only what we can measure. When we do, we forget that the wisdom of an inspired spirit exceeds our ability to describe it. The less we insist on a justification for our curiosities, the more we can surrender to the engine of inspiration and let learning happen…

…Since the school system operates at scale, it tends to squash things that are hard to predict, even if they reflect a student’s unique interest. For an in-person curriculum to scale, students need to be doing the same thing at the same time. The individual nature of inspiration makes that impossible.

Inspiration is also hard to define. Even the most inspired people can’t always define the edges of their own interests—let alone explain them to others. Furthermore, we change. Surprise is in the nature of growth. But by insisting on such a structured approach, schools squash the ambitions of the very students they intend to serve. Ultimately, the kind of rigidity you need to pump millions of students through the school system every year is the antithesis of the kind of flexibility that nurtures inspiration.

Most of all, schools should embrace entertainment because it lets you scale inspiration. Since entertainment means something different to every person, let’s start with a definition: to engage a person’s attention in a way that makes the time pass pleasantly.

Entertainment is not amusement. Entertainment can be nutritious, but amusement never is. Amusement is defined by distraction. Like candy, it’s appealing in the short-term but has few long-term benefits. Usually, when educators criticize entertainment, they’re actually talking about amusement. Though the distinction is subtle, it’s the difference between an educated citizenry and the dystopia of Huxley’s Brave New World.

Historically, educators have run away from entertainment because they assume it will lead to amusement. Throughout my childhood, I sensed an implicit assumption that learning needed to be boring in order for it to be effective. Take the assumption to its logical extreme and teachers face a dilemma of either locking students in a room and force-feeding them knowledge or letting them enjoy themselves, knowing they won’t learn anything.

If there’s anything I’ve learned by writing on the Internet, it’s that small tweaks in the way an idea is packaged can have an exponential impact on how much it resonates. The Greeks knew this intuitively. They wrapped their most important ideas in narratives instead of sharing them outright. Plays like The Iliad and The Odyssey weren’t just a form of entertainment. They provided cultural instruction too. Since they were passed along in speech instead of writing, they had to be memorized and known by heart. 

Today, masters of storytelling come from Hollywood and, increasingly, YouTube. They use many of the same tools that the Greeks discovered. Their storytelling philosophy is among the most effective tools we’ve invented for inspiring people at scale, which is why a popular documentary will spark more interest in a subject than the best textbooks ever will. Hollywood techniques aren’t going to make anybody an expert in their subject, but they can kindle the flame of curiosity.

---

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 Cloud) and Amazon (parent of AWS). 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 29 August 2021:

1. What I Learned While Eavesdropping on the Taliban – Ian Fritz

When people ask me what I did in Afghanistan, I tell them that I hung out in planes and listened to the Taliban. My job was to provide “threat warning” to allied forces, and so I spent most of my time trying to discern the Taliban’s plans. Before I started, I was cautioned that I would hear terrible things, and I most certainly did. But when you listen to people for hundreds of hours—even people who are trying to kill your friends—you hear ordinary things as well…

…In 2011, about 20 people in the world were trained to do the job I did. Technically, only two people had the exact training I had. We had been formally trained in Dari and Pashto, the two main languages spoken in Afghanistan, and then assigned to receive specialized training to become linguists aboard Air Force Special Operations Command aircraft. AFSOC had about a dozen types of aircraft, but I flew solely on gunships. These aircraft differ in their specifics, but they are all cargo planes that have been outfitted with various levels of weaponry that range in destructive capability. Some could damage a car at most; others could destroy a building. In Afghanistan, we used these weapons against people, and my job was to help decide which people. This is the non-euphemistic definition of providing threat warning.

I flew 99 combat missions for a total of 600 hours. Maybe 20 of those missions and 50 of those hours involved actual firefights. Probably another 100 hours featured bad guys discussing their nefarious plans, or what we called “usable intelligence.” But the rest of the time, they were just talking, and I was just eavesdropping.

Besides making jokes about jihad, they talked about many of the same things you and your neighbors talk about: lunch plans, neighborhood gossip, shitty road conditions, how the weather isn’t conforming to your exact desires. There was infighting, name-calling, generalized whining. They daydreamed about the future, made plans for when the Americans would leave, and reveled in the idea of retaking their country…

…All this bullshitting flowed naturally into the Taliban’s other great verbal talent, the pep talk. No sales meeting, movie set, or locker room has ever seen the level of hyper-enthusiastic preparation that the Taliban demonstrated before, during, and after every battle. Maybe it was because they were well practiced, having been at war for the majority of their lives. Maybe it was because they genuinely believed in the sanctity of their mission. But the more I listened to them, the more I understood that this perpetual peacocking was something they had to do in order to keep fighting.

How else would they continue to battle an enemy that doesn’t think twice about using bombs designed for buildings against individual men? This isn’t an exaggeration. Days before my 22nd birthday, I watched fighter jets drop 500-pound bombs into the middle of a battle, turning 20 men into dust. As I took in the new landscape, full of craters instead of people, there was a lull in the noise, and I thought, Surely now we’ve killed enough of them. We hadn’t.

When two more attack helicopters arrived, I heard them yelling, “Keep shooting. They will retreat!”

As we continued our attack, they repeated, “Brothers, we are winning. This is a glorious day.”

And as I watched six Americans die, what felt like 20 Taliban rejoiced in my ears, “Waaaaallahu akbar, they’re dying!”

It didn’t matter that they were unarmored men, with 30-year-old guns, fighting against gunships, fighter jets, helicopters, and a far-better-equipped ground team. It also didn’t matter that 100 of them died that day. Through all that noise, the sounds of bombs and bullets exploding behind them, their fellow fighters being killed, the Taliban kept their spirits high, kept encouraging one another, kept insisting that not only were they winning, but that they’d get us again—even better—next time.

2. Cancer patients’ own cells used in 3D printed tumours to test treatments – Rami Ayyub, Rami Amichay and Rinat Harash

The scientists extract “a chunk” of the tumour from the brain of a patient with glioblastoma – an aggressive cancer with a very poor prognosis – and use it to print a model matching their MRI scans, said Professor Ronit Satchi-Fainaro, who led the research at Tel Aviv University.

The patient’s blood is then pumped through the printed tumour, made with a compound that mimics the brain, followed by a drug or therapeutic treatment.

While previous research has used such “bioprinting” to simulate cancer environments, the Tel Aviv University researchers say they are the first to print a “viable” tumour.

“We have about two weeks (to) test all the different therapies that we would like to evaluate (on) that specific tumour, and get back with an answer – which treatment is predicted to be the best fit,” Satchi-Fainaro said.

A treatment is deemed promising if the printed tumour shrinks or if it lowers metabolic activity against control groups.

3. Mike Maples Jr. – A Playbook for Startups – Patrick O’Shaughnessy and Mike Maples Jr.

Patrick: [00:03:09] So Mike, I’ve been really looking forward to this one since our first conversation. I like to dive right in. We’ll get to your fascinating history and all the things you’ve done, but I like to start with ideas. One of the ideas that really struck me when we talked last was this notion of forcing a choice and the power of forcing a choice in business. Can you explain in detail what you mean by this and why it’s so powerful?

Mike: [00:03:29] I like to say that there’s two fundamental fields of business that are animating the economy. There are scalable corporations, and then there are scalable startups. And a scalable startup only has one opportunity to succeed. And that is if they offer a choice in the direction towards a different future. People don’t want something incrementally better from a startup, because human beings are conditioned to like things. And if you’re too much like what they already know, there’s not room in their head to believe that you can credibly do a better job than a very large incumbent as a startup.

So what a startup needs to do is offer a choice of a different future. So if everybody in the world is selling bananas, you don’t come in and say, I have 10 times better banana, you say I’m the world’s first apple. You may not want my apple, that’s okay, but you can’t reconcile an apple and a banana. The set of people who value the advantage of apples, a hundred percent of them should flock to your apple. To me, a startup that creates a breakthrough has to force that choice because they’re trying to create a movement. They’re trying to move people to a different future of their design. People don’t move because of a comparison, they move because they see something radically different, not incrementally better.

Patrick: [00:04:43] How do you decide what might be an apple? I mean, it’s obvious when you use the fruits as examples versus like a much tastier, more ripe banana or something like that. But how do you know, you’ve done this a lot, you’ve got a million reps, when you find a team or something really early that might have that apple quality?

Mike: [00:05:00] So I’d say that there’s really two markers. At a high level, the markers are inflections, which lead to breakthrough secrets about the future. And then there’s teams that assemble in a collaborative structure that’s different from a typical corporate organization. If we take the first part, inflections, an inflection is a sea change that creates the opportunity to create a breakthrough that changes the subject of the future and changes the way we, the people, think and act. What are some examples of inflections? Lyft, a company we invested in. GPS locators got bundled in with smartphones. And so another inflection was that smartphone adoption, we believed was going to go from 10% to greater than 50%. And so you say, hmm, if you marry those inflections, you could envision a world where in the near future, lots of people would have smartphones that can find each other.

And so then you could imagine applying the ideas of Airbnb and the sharing economy to cars. To me, that’s the first step. And this is the step that a lot of people skip. I call it insight development. In insight development, you use a technique We call backcasting to identify a secret that will lead to a different future. That will be a breakthrough different future. And then after that, you iterate that insight to product market fit, using techniques like customer development and others. And then after that, you do growth hack. So there’s this breakthrough sequence. There’s the insight breakthrough, the product breakthrough, then the growth breakthrough.

And so you need a team that’s able to do that, because a secret about the future, it reminds me of the movie, Ocean’s Eleven. It’s not enough that you just know that there’s money in the Bellagio safe, you have to rob it. These breakthrough movements, you have to have the courage to be disliked. You’re making people uncomfortable. You’re getting people out of their comfort zones. You’re selling people the way you think of the world now is about to be replaced by radically different way of thinking about the world.

And so as a result, the reason I liked the metaphor of Ocean’s Eleven is you’ve got the guy that can pick the safe and you got the acrobat. You have the person that cuts the lights in Vegas. You have the person that drives the SWAT van. You have George Clooney masterminding it all. Startup teams are a lot more like that. The great startup teams are engaging in an optimistic conspiracy theory to change the future, and so they need people that are different from a traditional org chart. They need people that are going to take out the critical risks that exist between them right now, and that different future that they want to design.

4. The Semiconductor Heist Of The Century | Arm China Has Gone Completely Rogue, Operating As An Independent Company With Inhouse IP/R&D – Dylan Patel

Arm is widely regarded as the most important semiconductor IP firm. Their IP ships in billions of new chips every year from phones, cars, microcontrollers, Amazon servers, and even Intel’s latest IPU. Originally it was a British owned and headquartered company, but SoftBank acquired the firm in 2016. They proceeded to plow money into Arm Holdings to develop deep pushes into the internet of things, automotive, and server. Part of their push was also to go hard into China and become the dominant CPU supplier in all segments of the market.

As part of the emphasis on the Chinese market, SoftBank succumbed to pressure and formed a joint venture. In the new joint venture, Arm Holdings, the SoftBank subsidiary sold a 51% stake of the company to a consortium of Chinese investors for paltry $775M. This venture has the exclusive right to license Arm’s IP within China. Within 2 years, the venture went rogue. Recently, they gave a presentation to the industry about rebranding, developing their own IP, and striking their own independently operated path.

This firm is called “安谋科技”, and is not part of Arm Holdings.

Before we get to the event they held and the significance of it, let’s do a recap. In 2020, Arm and a handful of the investors agreed to oust Allen Wu, the CEO of Arm China. He was ousted for using his position as the CEO of Arm to attract investments in his own firm, Alphatecture…

…Removing Allen Wu has proven to be very difficult. Despite a 7-1 vote by the Arm China board, the company seal was still held by Allen Wu. In China, the seal is a stamp which authorizes the person in possession to bind a company and its representatives with rights and obligations. Retrieving this seal and the business license would be a multiyear drawn-out legal process. Furthermore, it would mean at least some investors besides Arm must be along for the ride. The Chinese court system would need to agree with ousting an executive in favor of one that was hand selected by western influencers.

5. What is China’s common-prosperity strategy that calls for an even distribution of wealth? – Andrew Mullen

Chinese economists were quick to move to ease fears that China’s drive for common prosperity signals aggressive policies are afoot that will seize money from the rich to close the country’s yawning wealth gap.

“Robbing the rich to give to the poor” would only result in “common poverty,” said Zhang Jun, dean of the School of Economics at Fudan University in Shanghai, in an interview with The Paper at the end of August.

“The prerequisite of common prosperity is that the pie must continue to get bigger,” he added.

Li Daokui, a former adviser to China’s central bank, also emphasised the campaign to help more people enjoy economic well-being was a long-term goal.

“It cannot be expected that progress on a variety of indicators be made in the short term, for example five years,” Li said in an interview with Phoenix Television.

“We must be vigilant against ‘common prosperity’ becoming a Great Leap Forward, a risky endeavour, or something that drags down economic development and affects efficiency.”

Li, now chief economist at the New Development Bank, said it was “harmful” to equate common prosperity with making everyone’s income equal, and emphasised the campaign should not be equated with the anti-monopoly crackdown.

6. Xi’s Dictatorship Threatens the Chinese State – George Soros

Relations between China and the U.S. are rapidly deteriorating and may lead to war. Mr. Xi has made clear that he intends to take possession of Taiwan within the next decade, and he is increasing China’s military capacity accordingly.

He also faces an important domestic hurdle in 2022, when he intends to break the established system of succession to remain president for life. He feels that he needs at least another decade to concentrate the power of the one-party state and its military in his own hands. He knows that his plan has many enemies, and he wants to make sure they won’t have the ability to resist him…

…Although I am no longer engaged in the financial markets, I used to be an active participant. I have also been actively engaged in China since 1984, when I introduced Communist Party reformers in China to their counterparts in my native Hungary. They learned a lot from each other, and I followed up by setting up foundations in both countries. That was the beginning of my career in what I call political philanthropy. My foundation in China was unique in being granted near-total independence. I closed it in 1989, after I learned it had come under the control of the Chinese government and just before the Tiananmen Square massacre. I resumed my active involvement in China in 2013 when Mr. Xi became the ruler, but this time as an outspoken opponent of what has since become a totalitarian regime.

I consider Mr. Xi the most dangerous enemy of open societies in the world. The Chinese people as a whole are among his victims, but domestic political opponents and religious and ethnic minorities suffer from his persecution much more. I find it particularly disturbing that so many Chinese people seem to find his social-credit surveillance system not only tolerable but attractive. It provides them social services free of charge and tells them how to stay out of trouble by not saying anything critical of Mr. Xi or his regime. If he could perfect the social-credit system and assure a steadily rising standard of living, his regime would become much more secure. But he is bound to run into difficulties on both counts.

To understand why, some historical background is necessary. Mr. Xi came to power in 2013, but he was the beneficiary of the bold reform agenda of his predecessor Deng Xiaoping, who had a very different concept of China’s place in the world. Deng realized that the West was much more developed and China had much to learn from it. Far from being diametrically opposed to the Western-dominated global system, Deng wanted China to rise within it. His approach worked wonders. China was accepted as a member of the World Trade Organization in 2001 with the privileges that come with the status of a less-developed country. China embarked on a period of unprecedented growth. It even dealt with the global financial crisis of 2007-08 better than the developed world.

Mr. Xi failed to understand how Deng achieved his success. He took it as a given and exploited it, but he harbored an intense personal resentment against Deng. He held Deng Xiaoping responsible for not honoring his father, Xi Zhongxun, and for removing the elder Xi from the Politburo in 1962. As a result, Xi Jinping grew up in the countryside in very difficult circumstances. He didn’t receive a proper education, never went abroad, and never learned a foreign language.

Xi Jinping devoted his life to undoing Deng’s influence on the development of China. His personal animosity toward Deng has played a large part in this, but other factors are equally important. He is intensely nationalistic and he wants China to become the dominant power in the world. He is also convinced that the Chinese Communist Party needs to be a Leninist party, willing to use its political and military power to impose its will. Xi Jinping strongly felt this was necessary to ensure that the Chinese Communist Party will be strong enough to impose the sacrifices needed to achieve his goal.

Mr. Xi realized that he needs to remain the undisputed ruler to accomplish what he considers his life’s mission. He doesn’t know how the financial markets operate, but he has a clear idea of what he has to do in 2022 to stay in power. He intends to overstep the term limits established by Deng, which governed the succession of Mr. Xi’s two predecessors, Hu Jintao and Jiang Zemin. Because many of the political class and business elite are liable to oppose Mr. Xi, he must prevent them from uniting against him. Thus, his first task is to bring to heel anyone who is rich enough to exercise independent power.

That process has been unfolding in the past year and reached a crescendo in recent weeks. It started with the sudden cancellation of a new issue by Alibaba’s Ant Group in November 2020 and the temporary disappearance of its former executive chairman, Jack Ma. Then came the disciplinary measures taken against Didi Chuxing after it floated an issue in New York in June 2021. It culminated with the banishment of three U.S.-financed tutoring companies, which had a much greater effect on international markets than Mr. Xi expected. Chinese financial authorities have tried to reassure markets but with little success.

Mr. Xi is engaged in a systematic campaign to remove or neutralize people who have amassed a fortune. His latest victim is Sun Dawu, a billionaire pig farmer. Mr. Sun has been sentenced to 18 years in prison and persuaded to “donate” the bulk of his wealth to charity.

7. Quantum Computing Startups Draw Record Investment – Sarah Krouse

Capital invested in global companies focused on quantum computing and technology—including initial public offerings, mergers and acquisitions, venture capital and private-equity fundraising—has reached $2.5 billion so far this year, according to financial data firm PitchBook. That’s up from $1.5 billion in all of 2020…

…While traditional computers use bits that store data as zeros or ones, quantum computing relies on quantum bits, or qubits, which can be a zero, a one or a combination of both at the same time. That increases the complexity of the computations quantum computers can handle. But qubits are extremely fragile and their surrounding environment can easily disrupt how they work, which makes them prone to errors.

Today’s quantum computers “are not yet at a scale that’s useful to solve problems,” said John Morton, founder and chief technology officer of Quantum Motion, said Tuesday at an industry webinar. Quantum Motion, run by academics from University College London and Oxford, focuses on using qubits based on the silicon in chips that currently power smartphones and laptops.

The startups drawing investment include those building quantum computers that rely on a range of materials and methodologies to help computers scale and become more accurate, as well as firms focused on components of quantum computers and quantum algorithms.

They include Atom Computing, which raised $15 million in July and is building scalable quantum computers out of atoms, and Palo Alto, Calif.–based PsiQuantum, which is working to build a commercially viable large-scale, error-corrected quantum computer.

Also among them is Quantum Generative Materials, a company seeking to use quantum computing technology to develop new materials for batteries and mining. It is partially owned by Comstock Mining, which in June said it was investing $15 million in an initial seed round.

The path to commercialization for quantum computing–focused companies is generally long, and many operate at a loss, betting that their research and development breakthroughs will deliver big payoffs longer term.

IonQ, a company developing quantum computers that announced plans earlier this year to go public via a special purpose acquisition company, revealed in regulatory filings that it has “incurred significant operating losses since inception” and expects to continue losing money for the foreseeable future. It lost $15.4 million in 2020 and said it is in the early stages of generating revenue from a quantum computer it makes available through cloud services like AWS, Google Cloud and Microsoft Azure. After the deal, which is expected to close later this year, IonQ “will be well capitalized, with the ability to fully fund its growth strategy and deliver on its business model—creating long-term value for shareholders,” a spokesperson said.

---

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 Cloud), Amazon (parent of AWS), Microsoft (parent of Microsoft Azure). 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 22 August 2021:

1. 40 Things I Don’t Know by Age 40 – Ben Carlson

I turn 40 today.

I’ve seen lots of people share the wisdom they’ve gained over the years on their milestone birthdays.

I still have plenty of stuff to learn so here are 40 things I don’t know at age 40:

1. I don’t know why sports losses still put me in a bad mood. You don’t get to pick your sports allegiance as much as you’re born into it. I was born into a Michigan family. I love Michigan football.

I don’t watch sports nearly as much as I once did because little kids don’t have the patience for it but a bad loss (and there have been many) still stings.

It’s a horrible emotional investment yet all sports fans subject themselves to it.

Why do we care about this stuff so much?…

…6. I don’t know what took me so long to start eating healthy. Growing up I never watched what I ate. At all.

I played sports, lifted weights and had a relatively fast metabolism. Well, 2 out of those 3 dropped off as I got older.

I really overhauled my diet once twins were in the picture for us. I knew I was going to need more energy. I still eat junk food and carbs but typically only on the weekends or vacations.

The result is I feel healthier at age 40 than I did at age 30…

…11. I don’t know if the internet has been a net negative or positive on humanity. The internet has been a huge net positive for me personally. It’s changed the trajectory of my career. It’s allowed me to meet new friends, colleagues and business partners.

It’s given me the opportunity to work from West Michigan for a company headquartered in New York City. This would have been impossible 15-20 years ago.

For others, the internet has broken their brains or made their lives miserable.

The internet makes it far easier to communicate, do business, work and connect with people all around the globe.

It also makes it easier to compare yourselves to others, spread hate, troll and say things to others you wouldn’t dare say in normal life.

12. I don’t know what kind of person I’m going to be at age 60. In some ways, I’m the same as when I was 20. In other ways, I’m a completely different person.

Life is bizarre in that the older you get the more you feel like you’re done improving or changing yet it just keeps happening…

…19. I don’t know how much help you can actually provide as a parent when shaping your children. We have boy-girl twins. They have both grown up in the same household, with the same parenting at the exact same time.

Yet they couldn’t be more different, whether it’s their looks or personality or behavior.

Most of us would like to believe we’re shaping lives as parents but I wonder how much control we even have. I guess the best you can do is try to avoid teaching them the worst behaviors and support whoever they turn out to become.

2. Fusion experiment breaks record, blasts out 10 quadrillion watts of power – Tom Metcalfe

Scientists used an unconventional method of creating nuclear fusion to yield a record-breaking burst of energy of more than 10 quadrillion watts, by firing intense beams of light from the world’s largest lasers at a tiny pellet of hydrogen.

Researchers at the Lawrence Livermore National Laboratory in Northern California said they had focused 192 giant lasers at the National Ignition Facility (NIF) onto a pea-size pellet, resulting in the release of 1.3 megajoules of energy in 100 trillionths of a second — roughly 10% of the energy of the sunlight that hits Earth every moment, and about 70% of the energy that the pellet had absorbed from the lasers. The scientists hope one day to reach the break-even or “ignition” point of the pellet, where it gives off 100% or more energy than it absorbs.

The energy yield is significantly larger than the scientists expected and much greater than the previous record of 170 kilojoules they set in February…

…Modern nuclear power plants use nuclear fission, which generates energy by splitting the heavy nuclei of elements like uranium and plutonium into lighter nuclei. But stars can generate even more energy from nuclear fusion, a process of smashing together lighter nuclei to make heavier elements.

Stars can fuse many different elements, including carbon and oxygen, but their main energy source comes from the fusion of hydrogen into helium. Because stars are so large and have such strong gravity, the fusion process takes place at very high pressures within the star.

Most Earthbound efforts to generate energy from fusion, such as the giant ITER project being built in France, instead use a doughnut-shaped chamber called a tokamak to confine a thin plasma of hot, neutron-heavy hydrogen inside strong magnetic fields.

Scientists and engineers have worked for more than 60 years to achieve sustainable nuclear fusion within tokamaks, with only limited success. But some researchers think they will be able to sustain fusion in tokamaks within a few years, Live Science previously reported. (ITER is not projected to do this until after 2035.)

The method developed at Lawrence Livermore National Laboratory is one of a few ways of achieving nuclear fusion without using a tokamak.

Instead, the NFI uses an array of laser-light amplifiers the size of three football fields to focus laser beams on hydrogen fuel pellets in a 33-foot-wide (10 meters) spherical metal “target chamber.” These lasers are the world’s most powerful, capable of generating up to 4 megajoules of energy.

The method was originally designed so that scientists could study the behavior of hydrogen in thermonuclear weapons — so-called hydrogen bombs — but scientists think it could also have applications for generating energy from nuclear fusion.

3. The Metaverse is a Dystopian Nightmare. Let’s Build a Better Reality – John Hanke

As a society, we can hope that the world doesn’t devolve into the kind of place that drives sci-fi heroes to escape into a virtual one — or we can work to make sure that doesn’t happen. At Niantic, we choose the latter. We believe we can use technology to lean into the ‘reality’ of augmented reality — encouraging everyone, ourselves included, to stand up, walk outside, and connect with people and the world around us. This is what we humans are born to do, the result of two million years of human evolution, and as a result those are the things that make us the happiest. Technology should be used to make these core human experiences better — not to replace them.

Some might argue that we ought to ditch technology completely and return to a simpler way of life. But we don’t think that’s the answer either. Technology isn’t going away. The benefits of connecting us with information, friends, and family are simply too great. But over the last decades, those benefits have taken a huge toll, increasingly cutting us off from the experiences that we enjoy the most. It’s all too easy to get lulled into a routine of Zoom calls, online shopping, gaming, and scrolling through our social feeds. It encourages behavior toward one another that we would never tolerate in person, and is dividing our society by algorithmically pushing people into bubbles which reinforce the most extreme views.

At Niantic, we ask the question: what if technology could make us better? Could it nudge us get us off the couch and out for an evening stroll or a Saturday in the park? Could it draw us into public space and into contact with neighbors we might never have met? Could it give us a reason to call a friend, make plans with our families, or even discover brand new friends? Collectively, could it help us discover the magic, history, and beauty hiding in plain sight?

If this fresh perspective is the goal, what are we doing to achieve it? For us, it starts with a technology that connects the real world (the atoms) with the digital one (the bits). You could call it the ‘real world metaverse’ to distinguish it from the virtual videogame version, but honestly, I think we are just going to experience it as reality made better: one infused with data, information, services, and interactive creations. This has guided our work to date, both in terms of our first attempts to incorporate these concepts into products like Field Trip, Ingress, and Pokémon GO, and in terms of inventing critical technology to enable them. The core of this isn’t only the computer graphics challenge of adding annotations and animations to the physical world; it’s also — maybe even mainly — about the information, services, and experiences where digital meets physical.

Building the real world metaverse lies at the intersection of two major technical undertakings: synchronizing the state of hundreds of millions of users around the world (along with the virtual objects they interact with), and tying those users and objects precisely to the physical world. The first exists today in the Niantic Lightship platform, which underpins Pokémon GO and all of our products and supports hundreds of millions of users around the world. It means that those millions of users can create, change, and interact with digital objects in the physical world and that experience is consistent and shared by everyone. In the world of software, we call that a ‘shared state’ — we are all seeing the same thing, the same enhancements to the world. If you change something it’s reflected in what I see, and vice versa, for the millions of participants using the system.

Tying all of that precisely to the physical world is an even bigger project. It requires a new kind of map, similar in concept to something like Google Maps, but different because this map is built for computers, not people. It requires an unprecedented level of detail so that a phone or headset can recognize its location and orientation in a highly accurate way anywhere in the world. It is designed to enable the ultimate kind of digital wayfinding and coordination. Think of it as a kind of GPS, but without the satellites and a much higher level of accuracy. Niantic is building that map, in collaboration with our users. This is one of the grand challenges of augmented reality, and it’s the key to making it work the way we want it to — to make the real world come alive with information and interactivity.

Other big opportunities and challenges lie in semantically understanding the world. What are those pixels: an oak tree, a pond? A park bench, a cafe, or a historical building? Human cartographers have been doing this for hundreds of years. The new twist is in using computer vision to do this more or less automatically. Think of the opportunity as an analog to the web crawlers that search the web for pages to be indexed by Google. Today, computer vision powered by deep learning algorithms can provide a basic version of this in real time. In the future, offline processing can extend this to a much higher degree of fidelity and persistently tie this understanding to an ever-evolving AR map of the world. Niantic is pursuing these and other capabilities within the Lightship platform.

4. Other People’s Mistakes – Morgan Housel

But Daniel Kahneman mentions a more important truth in his book, Thinking, Fast and Slow: “It is easier to recognize other people’s mistakes than our own.”

I would add my own theory: It’s easier to blame other people’s mistakes on stupidity and greed than our own.

That’s because when you make a mistake, I judge it solely based on what I see. It’s quick and easy.

But when I make a mistake there’s a long and persuasive monologue in my head that justifies bad decisions and adds important context other people don’t see.

Everyone’s like that. It’s normal.

But it’s a problem, because it makes it easy to underestimate your own flaws and become too cynical about others’.

I try to stop myself whenever my explanation for other people’s behavior – financial or otherwise – is “well, they’re not very smart.” Or greedy. Or immoral. Yeah, sometimes it’s true. But probably less than we assume. More often there’s something else going on that you’re not seeing that makes the behavior more understandable, even if it’s still wrong.

5. Masters of Scale: Rapid Response Transcript – Francis DeSouza – Bob Safian and Francis DeSouza

DESOUZA: Illumina, for the first decade plus of our existence, we used to sell genomic analysis tools into the research market. And then in 2013, we entered the clinical market for the first time through the acquisition of a company called Verinata that did noninvasive prenatal testing.

Now, the way GRAIL started was, we were processing samples from pregnant mothers in our noninvasive prenatal testing lab. One of our scientists, this incredibly brilliant woman, noticed that although the fetal DNA in the blood was normal and healthy, there was something unusual about the maternal DNA. And so, she alerted us, we alerted the doctors to say, “Look, something seems to be off with the mothers here.” The doctors got back to us and said, “No, all the moms are fine, but we’ll stay in touch with them and see how they do.” In all of those cases, the mothers went on to find that they had cancer and didn’t know it.

I remember clearly the meeting at Illumina, and I still get goosebumps when I think about it, where we realized that we could be seeing the signals of cancer in a blood test. And so, we quickly put a team on it in Illumina. This was in the 2014, 2015 timeframe. They worked for over a year and came back and said, “Yeah, it looks like we’re seeing signals for cancer, but there is a lot of work that needs to be done between where we are now and actually having a safe test that we can bring to market. We need to do some very large clinical studies, and we need to hone the test to understand what specifically are we looking for in the blood.”

We knew that would take huge investment, and so we spun out the technology into a company called GRAIL. We put over 40 Illumina people into GRAIL, and we raised, ultimately, over $2 billion. And that’s one of the reasons we wanted to spin it out, to get access to the capital to move this technology as quickly as it could. The GRAIL team worked for a few years, and in the fall of 2019, they published their results. And the test they developed is truly extraordinary. This is a blood test that can identify 50 types of cancers across all stages.

Now, we know cancer kills 10 million people a year around the world, 600,000 here in the U.S. alone. We also know that if you catch cancers early, the patients have a much higher chance of survival. In a lot of cancers, you’ll see the odds of survival can get higher and up to 90 plus percent if you catch it in stage 1 or stage 2. The challenge is that 71% of people who die of cancer, die from cancers that have no screen. In fact, 45 out of the 50 cancers that GRAIL screens for have no screen today, like pancreatic cancer, for example. And so, there’s no ability to catch it early.

And so, when GRAIL published their data at the end of 2019, we realized this was a huge breakthrough and that this would save a lot of lives. That’s sort of how we initiated the process to acquire GRAIL. What we want to do is bring the GRAIL test to market as fast as possible to people around the U.S. and around the world. GRAIL has a terrific technology, and Illumina, we have the commercial presence in over 140 countries around the world. We have the teams that can work on reimbursement and regulatory approval, and so we can dramatically accelerate getting this test into the hands of people whose lives it could save

6. Enterprise Metaverses, Horizon Workrooms, Workrooms’ Facebook Problem – Ben Thompson

I wrote at the end of Metaverses earlier this month:

This is why I don’t think it is absurd that Nadella was the first tech executive to endorse the metaverse as a strategic goal. There is likely to be good business in building private metaverses for private companies, in a not-dissimilar way to Stephenson’s Franchise-Organized Quasi-National Entities made it easy for small-scale entrepreneurs to set up their own franchise-states.

Facebook’s goal is more audacious: the company already serves 3.5 billion users, which means creating a shared reality for over half of the world is a plausible goal. That reality, though, will likely sit alongside other realities, just as Facebook the app sits alongside other social networks. This metaverse is universal, but not exclusive.

What I am skeptical of is the idea of there being one Metaverse to rule them all; we already have that, and in this case the future is, in William Gibson’s turn of phrase, here — it’s just not very evenly distributed. I speak from personal experience: for two decades I have lived and worked primarily on the Internet; it’s where I experience friendship and community and make my living. Over the last year-and-a-half hundreds of millions of people have joined me, as the default location for the work has switched from the office to online (that “online” is primarily experienced at home does not mean that home is intrinsic to the work — “work from home” is a misnomer). This too is an inverse of Snow Crash, where most jobs are in the real world, and recreation in the Metaverse; the future of work is online, and the life one wants to live in the reality of one’s choosing.

I’ve been looking for an opportunity to come back to this point; much of that article was focused on the fact that while Snow Crash had a dystopian real world defined by walled gardens, along with a universal Metaverse, it is the Internet that is in fact defined by walled gardens, while the real world is our shared universal reality. Snow Crash had it backwards. That wasn’t the only thing that was backwards though: in Snow Crash “most jobs are in the real world, and recreation in the Metaverse”, but, thanks in part to COVID, reality is turning out to be something different.

The reason this matters is that the adoption of new technologies requires some sort of forcing function. PCs, for example, were first adopted by enterprises because of the productivity gains they afforded, and then later on by consumers who had already experienced a PC at work (generally speaking of course; there are always exceptions). This is how Microsoft, which has no real idea of how to build a consumer product, briefly became a consumer computing powerhouse: the PC monopoly gifted to them by IBM meant that Windows PCs were the obvious choice for the home.

Smartphones went in the opposite direction: by 2007 almost everyone had a mobile phone of some sort (usually a dumb phone), then Apple came along and offered a compelling consumer product that, under subsidy, wasn’t that much more expensive, and much more useful and entertaining. Only then did consumers demand to use those phones at work.

To date most assumptions about VR — the most obvious manifestation of the metaverse concept — have focused on the consumer use case, primarily gaming. This is why I have long been relatively bearish on virtual reality, especially relative to augmented reality. I wrote about CES 2016 in a Daily Update:

I think it’s useful to make a distinction between virtual and augmented reality. Just look at the names: “virtual” reality is about an immersive experience completely disconnected from one’s current reality, while “augmented” reality is about, well, augmenting the reality in which one is already present. This is more than a semantic distinction about different types of headsets: you can divide nearly all of consumer technology along this axis. Movies and videogames are about different realities; productivity software and devices like smartphones are about augmenting the present.

I argued in The Problem with Facebook and Virtual Reality that this made VR less valuable:

That is the first challenge of virtual reality: it is a destination, both in terms of a place you go virtually, but also, critically, the end result of deliberative actions in the real world. One doesn’t experience virtual reality by accident: it is a choice…

That is not necessarily a problem: going to see a movie is a choice, as is playing a video game on a console or PC. Both are very legitimate ways to make money: global box office revenue in 2017 was $40.6 billion U.S., and billions more were made on all the other distribution channels in a movie’s typical release window; video games have long since been an even bigger deal, generating $109 billion globally last year.

Still, that is an order of magnitude less than the amount of revenue generated by something like smartphones. Apple, for example, sold $158 billion worth of iPhones over the last year; the entire industry was worth around $478.7 billion in 2017. The disparity should not come as a surprise: unlike movies or video games, smartphones are an accompaniment on your way to a destination, not a destination in and of themselves.

That may seem counterintuitive at first: isn’t it a good thing to be the center of one’s attention? That center, though, can only ever be occupied by one thing, and the addressable market is constrained by time. Assume eight hours for sleep, eight for work, a couple of hours for, you know, actually navigating life, and that leaves at best six hours to fight for. That is why devices intended to augment life, not replace it, have always been more compelling: every moment one is awake is worth addressing.

In other words, the virtual reality market is fundamentally constrained by its very nature: because it is about the temporary exit from real life, not the addition to it, there simply isn’t nearly as much room for virtual reality as there is for any number of other tech products.

The point of invoking the changes wrought by COVID, though, was to note that work is a destination, and its a destination that occupies a huge amount of our time. Of course when I wrote that skeptical article in 2018 a work destination was, for the vast majority of people, a physical space; suddenly, though, for millions of white collar workers in particular, it’s a virtual space. And, if work is already a virtual space, then suddenly virtual reality seems far more compelling. In other words, virtual reality may be much more important than previously thought because the vector by which it will become pervasive is not the consumer space (and gaming), but rather the enterprise space, particularly meetings. 

7. Low Rates, More Risk – Michael Batnick

Lower interest rates encourage people to take more risks, in general. There is little question about this.

By taking short-term interest rates to zero, which I had no objection to, the federal reserve “forced” me to find better ways to allocate my cash…

…Okay, wait a minute. If everyone is taking more risk, then who plowed $17 billion into fixed income ETFs in July? And if everyone is taking more risks, then how do we explain this?…

…For years, we’ve seen massive flows into bond funds and ETFs, even with rates low and getting lower. And simultaneously, even with stocks high and going higher, we’ve seen massive flows out of stocks funds and ETFs.

Are lower interest rates pushing up the valuation of stocks? Without a doubt. Are lower interest rates pushing people into SPACs? Eh, I don’t know about this one. People were doing crazy shit with their money in the 90s when the 10-year was at 6%.

I’m taking more risks in an area of my portfolio that I would prefer to have no risk. That’s a direct result of the fed taking rates to zero. But I’m not taking even more risks with areas of my portfolio that are already at risk. I continue to buy index funds every two weeks in my 401(k) and every month in my taxable account. I’m not YOLOing into call options on SPACS. I’m not going all-in on Pudgy Penguins. I’m taking risks, but I’m not sniffing glue.

---

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, Illumina, and Microsoft. Holdings are subject to change at any time.

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

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

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

Here are the articles for the week ending 15 August 2021:

1. Hanging By A Thread – Morgan Housel

Robert E. Lee had one last shot to escape Ulysses Grant’s troops and regroup to gain the upper hand in the Civil War. His plan was bold but totally plausible. All he needed was food for his hungry troops.

An order was put in to have rations delivered to a Virginia supply depot for Lee’s men.

But there was a communication error in Richmond, and the wagons delivered boxes of ammunition but not a morsel of food.

Lee said the mishap “was fatal, and could not be retrieved.” His troops were starving. The Civil War ended two days later.

History hangs by a thread…

…Finance professor Ellroy Dimson says, “risk means more things can happen than will happen.” An important point here is that if none of these big events occurred, something else just as wild and unpredictable could have taken their place. Even when some part of the outcome is the same, the context and little bits of trivia are different in a way that can totally change the final story. America may have joined World War I without the Lusitania’s sinking, but its participation could have been less, or later, or not as popular. That could have shifted how the interwar period in the 1920s and 1930s played out, which would have impacted how World War II occurred, which would have altered the course of the most promising inventions of the 20th century … on and on, endlessly.

I try to keep two things in mind in a world that’s this fragile to chance.

One is to base your predictions on how people behave vs. specific events. Predicting what the world will look like in, say, 2050, is just impossible. But predicting that people will still respond to greed, fear, opportunity, exploitation, risk, uncertainty, tribal affiliations and social persuasion in the same way is a bet I’d take.

Another – made so starkly in the last year and a half – is that no matter what the world looks like today, and what seems obvious today, everything can change tomorrow because of some tiny accident no one’s thinking about. Events, like money, compound. And the central feature of compounding is that it’s never intuitive how big something can grow from a small beginning.

2. How Millennial Investors Lost Millions on Bill Ackman’s SPAC – Michelle Celarier

Last fall, he started hearing about the boom in SPACs, and Ackman’s Tontine stuck out: It was the largest, with more than $4 billion to shop for a company. Ackman, a legendary hedge-fund manager who’d just made $2.6 billion on a timely Covid short bet, was behind the SPAC, and he claimed it was the most investor-friendly one ever.

In November, when Ackman told investors in his hedge fund that he expected to be able to announce a deal with a target company by the end of the first quarter, the psychiatrist jumped in. 

The SPAC market was red hot, with SPACs sponsored by venture-capital guru Chamath Palihapitiya and former Citigroup investment banker Michael Klein also soaring. In early February, Ackman tweeted a rap video about SPACs minting money, and Redditors went crazy. “That video literally single-handedly caused the stock to rise 10 percent,” recalls the psychiatrist.

The sense of urgency was palpable. “It was like, okay, this is coming very soon. If you don’t get in now, you’re going to miss it,” he says. “There’s just that frenzy of wanting to get in on the ground floor. It’s like getting in an IPO at the ground level” — something that is unavailable to retail investors and a key reason why they buy shares of SPACs before deals are announced.

By March, the psychiatrist was plunking all of his capital into call options on Tontine, which goes by the stock symbol PSTH. “Whatever money I had, I pretty much was putting it all into buying more of it,” he says.

At one point, his stake in Tontine was worth over $1 million on paper. He lost it all when his June 18 calls — with a strike price of $25 — expired worthless; the stock was around $23 at the time.

The Reddit gang had convinced themselves that Ackman’s Tontine was going to merge with a unicorn like Stripe, the online payments processor, or Elon Musk’s Starlink — largely because Ackman himself had joked about “marrying a unicorn” when he launched his SPAC last July. The media was also obsessed with the unicorn theme. But most everyone seemed to ignore the fact that Tontine’s prospectus listed unicorns as just one type of company that Ackman was chasing.

And when a deal was finally disclosed on June 4, Tontine’s partner wasn’t a unicorn, the moniker for a private startup valued at more than $1 billion. Moreover, there would be no merger. In a highly unusual move, Tontine had agreed to take a 10 percent stake in the upcoming spinoff of Universal Music Group from French conglomerate Vivendi. There would be money left over for another deal and a chance to get in on the ground floor of a third vehicle. 

The structure was too complicated for both investors and their brokerages to quickly unpack, and the stock, along with the warrants and options attached to it, tanked. Within weeks, the Securities and Exchange Commission stunned Ackman, essentially killing the deal by telling his lawyers that it did not meet the New York Stock Exchange’s requirements for a SPAC — even though Ackman said on CNBC that the NYSE had given him the go-ahead months earlier.

By the time the deal fell apart, the psychiatrist’s savings had already evaporated. He is now scrambling to make quarterly tax payments to the IRS, while owing $350,000 in student loans.

“I considered this a safe, calculated bet,” he says. So did a lot of people, including 16 others II interviewed by phone, Zoom, direct message, or in person. But as they all learned, there is little safety in SPACs — especially in the call options on those that haven’t found a partner. 

3. Magic beans – Josh Brown

Imagine the chutzpah it takes to say to yourself that you know definitively what the global economy is going to look like in six months. Now imagine thinking you could take this certainty about the future and use it to predict exactly which investment markets would rise and fall as a result – so not only can you see the economy’s future, but you can predict how all of the other investors will react to it!

Now imagine saying you could do this sort of thing consistently, out loud in front of other people.

Now imagine charging them money for it.

At this point, you’re selling magic beans. A talking dog. A singing frog. A goose that lays golden eggs. You’re a medicine show.

When I explain like this, the whole notion sounds crazy. Crazy sells.

The internet is filled with people who will believe nearly anything they read, if presented in the right circumstances. In part, it’s because they don’t spend a lot of time considering how unlikely it is that someone is willing to sell you the future for twenty dollars a month. In part, it’s because they do know better, but deep down they still want to believe. So if you speak with enough conviction, and don’t get asked too many questions about whether or not you’ve been right about these predictions historically, you can make a lot of money. The outcome doesn’t matter, you’re filling a void of rampant doubt with the opiate of your professed certainty and confidence.

So what’s the right answer? For me, it’s always been accepting the limitations inherent in trying to understand the future and arranging your bets in such a way that you can succeed despite a multitude of potential outcomes. Building durable portfolios, expecting risk to eventually be rewarded and accepting the fact that there will be good times and bad.

4. Sebastian Mejia – Mastering On-Demand Convenience – Patrick O’Shaughnessy and Sebastian Mejia

Patrick: [00:08:43] Can you talk about the early network dynamics where you had to go get couriers, convince them to log into the app and you had to go get demand? What was that like? What literally was the first city or first few order? This free text thing sounds extremely unique and different than the structured inventory that you saw from basically every other app. How did that work? How did you figure out how much you needed to pay the couriers? All the basics of like the unit economics must’ve been fascinating to figure out on the fly, how did you do that? What was it like?

Sebastian: [00:09:12] Previously, we had experience building companies, but it was more enterprise. And we were basically selling software to supermarket. So we got some sort of idea of how the industry worked, but we wanted to do something completely different, focused on the customer. So we basically started building and initially, that convenience product had a very limited assortment. I’m talking about 1,000, 2,000 SKUs. And basically said, “Well, we already have this consumer-facing app, it’s going to be very easy to build all of the logistics behind it.” And of course, that’s not the case. When we initially launched, we had no traction whatsoever. So it was literally us trying to understand what was going on with the customers, why they were not engaging with the product. So Rappi from the beginning, had this DNA of being very hyper-local and very guerrilla. And that meant that we literally went out to get customers onboarded and talking to customers. And we were basically offering donuts in exchange of downloads.

And that was our customer acquisition costs. And we also had to do the same thing on the courier front. And what are they interesting insights is that although eCommerce is still very small and it was way smaller back then, you had a culture of delivery. You had a culture of calling the restaurant, calling the store, and there were couriers already working. There were just completely disconnected. There was no network bringing them together, making them productive, making them more efficient in the way they routed. So we didn’t have to go against, let’s say culture. We didn’t have to go and educate couriers and even go ahead and educate deeply the customers, because they already understood that delivery was this thing that existed. We just applied technology to organize all of these agents and these add on let’s say, in the physical world to make them function more efficient.

I remember us doing the deliveries early on. I remember I was being scooters, making drops, testing the courier app. And from there, we started to evolve the product and we started to also engage couriers to make it better. For us, part of the mission was super critical on how are we going to make these guys not only more efficient, but we’re going to make sure that they are paid very well, and that they’re making significant more than their minimum wage. And I’m only talking about two sides of the marketplace, right? If you introduced the merchant side of the marketplace, it adds another layer of complexity. And at the beginning, when we launched, we really didn’t understand how to integrate with catalog of a supermarket. How do you actually integrate with a 30,000 SKU store? How do you make sure that you have relevant inventory on real time? How did you integrate with a restaurant?

Rappi, when we launched, we didn’t even have tablets. We didn’t have integrations with POS systems. So it was literally us going placing the order as if it was a random customer. A lot of the things were built as we learn. And many of the things had to be built from first principles very early on, because it’s not that you have a lot of tech stack or logistics stacks that you can just jump on and use to launch. It’s one of the challenges of building in the emerging market. But I also think it’s an advantage because you get to build these very core competencies that tomorrow are going to be very valuable business, right? I see ourselves doing all sorts of services on top of these piece of the stack, whether it’s logistics, whether it’s customer service, marketing tools, etc.

Patrick: [00:12:37] When I talked to the founders of Loft, they had an interesting, similar experience where there’s no MLS system. So there was no proper database of apartments or homes or something they could tap into. They basically had to build it themselves. I’ve got this obsession with companies that make previously non legible data legible to some system tend to do really, really well. And so I’m really interested how you solve that problem in these specific cases. So that 30,000 SKU supermarket, or if there’s a restaurant with 200 menu items, literally, what was the process of getting that legible to your software in your platform? How did you do?

Sebastian: [00:13:11] The supermarket and the restaurant business is quite different. I think in the restaurant, you basically have two options to actually integrate with what happens inside the business. You can use a tablet or you can use an integration with the POS. So you’re basically getting as close as possible to the kitchen that gives the restaurant owner the ability to actually update the menu, the ability to pick the cooking time and selected depending on the dish that you’re cooking. So you’ve got to go really deep in the operations of the restaurant. Then when you’re going through the supermarket space or the retailers, we’re dealing with inventory per store, you’re dealing also with inventory levels. So you need to make sure that you have the assortment, but you also need to have some sort of measurement or way of identifying where certain products are being stocked out. And that’s a big, big challenge that has a lot of different angles that you can tackle it from machine learning to project; what are going to be the products that are stocked out with more probability, to just better integrations with the supermarkets.

Not all of these companies have a proper API where you can actually connect with and understand what is the assortment that they have in the store. So you basically end up using flat files, and you need to have data that is coming in. You have to clean that data in so it connects actually with your core catalog, which is the nervous system of any type of eCommerce business. So that represents a lot of different challenges. Today Rappi is operating with more than 200,000 points of sale from restaurants to retailers of all sorts. So that data challenge, I think, is very, very intriguing. It’s something that we are investing a lot of energy and time. And I wouldn’t say we are fully on that plays where we can say, “Look, this is something that we mastered,” because there’s a lot of complexity. Bt I also think it’s one of the most interesting aspects of this business because local means that you’re integrating such a deep way with the local economy that you’re creating all of these modes and all of these integrations that are just very hard to replicate.

Patrick: [00:15:21] Is there a good example of that? I want to understand what you mean by local. Is it measured in blocks? Is it measured in the equivalent of a zip code? What is local and how different might one unit be from a neighboring unit and in what ways?

Sebastian: [00:15:34] We could be talking about two kilometer radius for a specific zone. And then it’s not only how you actually draw the zone in a city. You also have Latin America with a lot of income disparity. So it’s like your perfect Manhattan. It’s much more mixed, and you can have a very wealthy neighborhood next to a neighborhood that is not wealthy at all. So you have to navigate all of that hyper locality aspect. And then once you set those polygons, you’re basically delivering inside those zones. And then what I mean by local is that you also have to integrate with the stores inside that specific zone. You have to position the couriers inside that specific zone.

But once you do that, the marketplace starts to thrive because the customer experience is amazing. 10, 30 minute delivery. The courier experience is amazing because they’re super productive. You don’t have to do a lot of long distance. Structurally, that also means that you can deliver in a very affordable way. As a customer, you’re paying $1 to $1,50, then you’re still allowing the couriers to make two times the minimum wage. So the model works really, really well. And then you have to have all of the dimension of catalog really, really tied into what you do. And by that, I mean all of those integrations with inventories, with catalogs as real time as possible. So that, in my view, is a very, very hard thing to replicate. That’s why I have this idea that if you look at all of the eCommerce companies in the world, the majority of them that deal with, let’s say, infrastructure or the ones that really thrive in their specific markets tend to be local with very few exceptions. And the exceptions are much more the companies that do drop shipping or that are exporting from China into the world.

But if you really understand that you gotta deliver fast, the companies need to build a local presence, and it’s hard for a foreign company to actually replicate this because of the level of depth at which you need to operate.

5. Eternal Change for No Energy: A Time Crystal Finally Made Real – Natalie Wolchover

A novel phase of matter that physicists have strived to realize for many years, a time crystal is an object whose parts move in a regular, repeating cycle, sustaining this constant change without burning any energy.

“The consequence is amazing: You evade the second law of thermodynamics,” said Roderich Moessner, director of the Max Planck Institute for the Physics of Complex Systems in Dresden, Germany, and a co-author on the Google paper. That’s the law that says disorder always increases.

Time crystals are also the first objects to spontaneously break “time-translation symmetry,” the usual rule that a stable object will remain the same throughout time. A time crystal is both stable and ever-changing, with special moments that come at periodic intervals in time.

The time crystal is a new category of phases of matter, expanding the definition of what a phase is. All other known phases, like water or ice, are in thermal equilibrium: Their constituent atoms have settled into the state with the lowest energy permitted by the ambient temperature, and their properties don’t change with time. The time crystal is the first “out-of-equilibrium” phase: It has order and perfect stability despite being in an excited and evolving state.

6. What’s an API? – Justin Gage

An API is a group of logic that takes a specific input and gives you a specific output. A few examples:

• If you give the Google Maps API an address as an input, it gives you back that address’s lat / long coordinates as an output
• If you give the Javascript Array.Sort API a group of numbers as an input, it sorts those numbers as an output
• If you give the Lyft Driver API a start and finish address as an input, it finds the best driver as an output (I’m guessing)

When engineers build modules of code to do specific things, they clearly define what inputs those modules take and what outputs they produce: that’s all an API really is. When you give an API a bunch of inputs to get the outputs you want, it’s called calling the API. Like calling your grandma.

Inputs

An API will usually tell you exactly what kind of input it takes. If you tried putting your name into the Google Maps API as an input, that wouldn’t work very well; it’s designed to do a very specific task (translate address to coordinates) and henceforth it only works with very specific types of data. Some APIs will get really into the weeds on inputs, and might ask you to format that address in a specific way. 

Outputs

Just like with inputs, APIs give you really specific outputs. Assuming you give the Google Maps API the right input (an address), it will always give you back coordinates in the exact same format. There’s also very specific error handling: if the API can’t find coordinates for the address you put it, it will tell you exactly why. 

7. Jim Ling – Chris Tucker

Through the Sixties and early Seventies, conglomerate-in Texas and throughout the country -meant Jim Ling, creator of the huge Dallas-based Ling-Temco-Vought (LTV). How big was LTV? Massive.

At its peak in 1969, Ling’s company controlled Wilson, the nation’s largest producer of sporting goods and its third-largest meatpacker; Jones and Laughlin, America’s sixth-largest steel company; Braniff, the eighth-largest airline; and Vought, the eighth-largest defense contractor. Toss in a string of other companies with their innumerable subsidiaries and you have Ling-Temco-Vought, at the time the 14th-largest company in America.

How big was LTV? So big, some say, that only the U.S. government was big enough to stop it. Calling LTV “a force destructive of competition,” the Justice Department filed an antitrust suit to force LTV to give up Jones and Laughlin. Ling, not his lawyers, devised a settlement to placate the feds.

How big was LTV? So vast, according to some observers, that not even the man who created it really understood its inner workings. And Ling, an idiosyncratic genius, was finally caught up in a swirl of circumstances-market reversals, government harassment, personal conflicts with associates-that led to the famed Palace Revolt of 1970, when Ling was booted out of the company he built.

---

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 do not have a vested interest in them. Holdings are subject to change at any time.