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 30 May 2021:

1. How to Do Long Term – Morgan Housel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. Letter #34: On wanting – Ali Montag

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5. The hybrid work paradox – Satya Nadella

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are the articles for the week ending 16 May 2021:

1. Play Your Own Game – Morgan Housel

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

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

But people play wildly different games.

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

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

What you want might not be what I want.

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

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

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

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

But it’s rarely parsed that way.

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

VCs have different priorities than public market investors.

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

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

It’s fine.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. The Butterfly Effect – John Markoff

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are the articles for the week ending 09 May 2021:

1. The hottest and least understood e-commerce model: Community Group Buying – Lilian Li

Fresh groceries have remained the holy grail of e-commerce. A task so daunting that even Amazon hasn’t been able to crack it. In China, the retail grocery market is estimated by McKinsey to be worth 5.2 trillion RMB (794bn dollars) in 2019, with only 10% of that currently online. In 2020, it seems like we’ve finally found a business model where the unit economics works at scale. Theoretically at least.

That’s 社区团购 or community group-buying, the least understood business model in online retail right now. In this edition, we’ll look at this business model’s innovations, its enabling factors, what will determine the winner’s success and ultimately its challenges…

…With community group buying, the format works like this:

• A self-designated community leader creates and maintains a WeChat group.
• Community leader sign-ups individuals from their local region (usually within their regular walking distance), each WeChat group is capped at 500 people.
• They maintain a weekly or daily schedule of posting a product selection to the group.
• The products are links to mini-programs where residents click through to place their orders. Residents do not have to order the same products and will only need to pay when their collective demand exceeds a designated value.
• The products are not limited to groceries but also include other life essentials like paper towels.
• Once the residents place their orders, the entire collated order is delivered in bulk to collection points the next day for the community leader to pick up.
• Community leader unpacks the bulk order and then organises this into the resident’s orders. They will either deliver the order, or the residents will come to this pick up themselves.
• In case of issues, the community leader is the first point of contact for the residents. They will escalate the problem to the platforms and handle the resolution on behalf of the residents.
• For their work, the community leaders get 10% commission from their group orders. Given the hands-on nature of the work, a community leader can typically only manage three WeChat groups well at any one point.

With the addition of community leaders into the supply chain, the unit economics for online groceries are fundamentally changed. Now CAC is lowered since community leaders are responsible for creating their own customer groups. Customer Life Time Value (CLTV) is extended since customers have more hands-on support and social buying promotes frequent purchases. Conversion rates are much higher – can reach 10% in WeChat community group buying rather than typical 2-3% e-commerce conversions. Community leaders and customers take care of the last-mile delivery, shaving off precious additional logistics costs (lowering logistics costs is often the sole driver of profitability in marketplaces). The platform can carry fewer SKUs, buying in large quantities directly from the source rather than through intermediaries and have higher pass-through rate, which means the produce stays fresh and contributes to a positive customer experience. 

“The delivery cost per order for the home delivery mode is 7-10 RMB. This part of the cost is relatively rigid, and other fulfilment costs such as storage are about 1-2 RMB. The community group purchase model with a better order density can achieve less delivery cost of than 1.5 RMB per order” – Xingsheng Youxuan  (One of the startup unicorn in the race)

The model is a win-win-win proposition for the consumer, community leader and the produce platform itself. The typical community group buying customer is price-conscious, often residing in third or fourth-tier cities, and frequently elderly (a population who find it hard to navigate the complicated purchasing consumer apps). For these consumers, they can access fresher, cheaper and potentially a wider range of goods (especially seafood in more remote regions). For the community leaders, who are typically local shopkeepers or stay-at-home mums, they can earn additional revenue while serving their community. For the produce platforms, they can run a streamlined operation with less spoilage and high volume throughputs. Ultimately, they can operate a profitable business at scale.

2. Chip shortage highlights U.S. dependence on fragile supply chain – Lesley Stahl

Car companies across the globe have had to idle production and workers because of a shortage of semiconductors, often referred to as microchips or just chips. They’re the tiny operating brains inside just about any modern device, like smartphones, hospital ventilators or fighter jets. The pandemic has sent chip demand soaring unexpectedly, as we bought computers and electronics to work, study, and play from home. But while more and more chips are needed in the U.S., fewer and fewer are manufactured here.

Intel is the biggest American chipmaker. Its most advanced fabrication plant, or fab for short, is located outside Phoenix, Arizona. New CEO, Pat Gelsinger, invited us on a tour to see how incredibly complex the manufacturing process is…

…Lesley Stahl: I’m wondering, if we’re going to continue to have shortages, not just in cars, but in our phones and for our computers, for everything?

Pat Gelsinger: I think we have a couple of years until we catch up to this surging demand across every aspect of the business. 

COVID showed that the global supply chain of chips is fragile and unable to react quickly to changes in demand. One reason: fabs are wildly expensive to build, furbish, and maintain.

Lesley Stahl: it used to be that there were 25 companies in the world that made the high-end, cutting-edge chips. And now there are only three. And in the United States? – You.

GELSINGER HOLDS UP FINGER

Lesley Stahl: One. One.

Today, 75% of semiconductor manufacturing is in Asia. 

Pat Gelsinger: 25 years ago, the United States produced 37% of the world’s semiconductor manufacturing in the U.S. Today, that number has declined to just 12%.

Lesley Stahl: Doesn’t sound good.

Pat Gelsinger: It doesn’t sound good. And anybody who looks at supply chain says, “That’s a problem.”…

…Pat Gelsinger: Well, they’re pretty happy to buy from some of the Asian suppliers.

Actually, they don’t always have a choice. For chips with the tiniest transistors – there is no “made in the U.S.” option. Intel currently doesn’t have the know-how to manufacture the most advanced chips that Apple and the others need.

Lesley Stahl: The decline in this industry. It’s kinda devastating, isn’t it?

Pat Gelsinger: The fact that this industry was created by American innovation– 

Lesley Stahl: The whole Silicon Valley idea started with Intel.

Pat Gelsinger: Yeah… The company stumbled. You know, it’s still a big company – we had some product stumbles, some manufacturing and process stumbles.

Perhaps the biggest stumble was in the early-2000s, when Steve Jobs of Apple needed chips for a new idea: the iPhone. Intel wasn’t interested. And Apple went to Asia, eventually finding TSMC: the Taiwan Semiconductor Manufacturing Company – today, the world’s most advanced chip-manufacturer, producing chips that are 30% faster and more powerful than Intel’s.

Lesley Stahl: They’re ahead of you on the manufacturing side. 

Pat Gelsinger: Yeah.

Lesley Stahl: Considerably ahead of you. 

Pat Gelsinger: We believe it’s gonna take us a couple of years and we will be caught up…

…But TSMC is a manufacturing juggernaut worth over a half a trillion dollars. Collaborating with clients to produce their chip designs, it’s been sought out by Apple, Amazon, contractors for the U.S. military, and even Intel, which uses TSMC to produce their cutting-edge designs they’re not advanced enough to make themselves.

Lesley Stahl: How and why did Intel fall behind?

Mark Liu: It is surprising for us too…

…Pat Gelsinger: China is one of our largest markets today. You know, over 25% of our revenue is to Chinese customers. We expect that this will remain an area of tension, and one that needs to be navigated carefully. Because if there’s any points that people can’t keep running their countries or running their businesses because of supply of one critical component like semiconductors, boy, that leads them to take very extreme postures on things because they have to.

The most extreme would be China invading Taiwan and in the process gaining control of TSMC. That could force the U.S. to defend Taiwan as we did Kuwait from the Iraqis 30 years ago. Then it was oil. Now it’s chips.  

Lesley Stahl: The chip industry in Taiwan has been called the Silicon Shield.

Mark Liu: Yes.

Lesley Stahl: What does that mean? 

Mark Liu: That means the world all needs Taiwan’s high-tech industry support. So they will not let the war happen in this region because it goes against interest of every country in the world.

Lesley Stahl: Do you think that in any way your industry is keeping Taiwan safe?

Mark Liu: I cannot comment on the safety. I mean, this is a changing world. Nobody want these things to happen. And I hope– I hope not too– either. 

3. How Shopify’s Network of Sellers Can Take On Amazon – Nilay Patel & Harley Finkelstein

[Patel] And so how does Shopify make money? You take a cut of every transaction, you charge a subscription fee. Where do you take your cut?

[Finkelstein] Yeah, so two sides. One is on the subscription side. So there’s a subscription fee. Starts at $29 a month, if you’re just getting started, and goes up to $2,000 a month for some of the larger merchants. But we also have a payments business. Shopify Payments powers a majority of, particularly in our main geographies, a majority of transactions. We have a capital business. We’ve now given out more than $2 billion of capital to small businesses. We have a fulfillment business and a shipping business. Actually, this is maybe a good point to pause on for a second.

If you were to pretend that Shopify was a retailer, we’re not a retailer, but pretend we were, we would be the second largest online retailer in America, after Amazon. The reason I say that is because the second largest online retailer in America, they’re entitled to massive economies of scale. And so what we try to do is, we try to go to the shipping companies and capital companies and the payment companies, and we negotiate as if we were the second largest retailer, except instead of keeping those economies of scale for ourself, we distribute those economies of scale and give those advantages to small businesses.

And we think what that does is a real leveling of the playing field so that these companies can get bigger, faster, at a pace that, frankly, we’ve never seen before. There’s rumors now that some of our biggest merchants are going public, are filing for IPOs. Some of them didn’t exist five years ago. In the history of commerce and retail, we’ve never seen that type of scale at that speed…

…[Patel] So I want to just pull back for one second, talk about Shopify as it’s something that you could look at as the second largest online retailer in America. You’re up against Google, Facebook, Amazon, Apple, the rest. This last quarter of earnings, these companies all did extraordinarily well. When I started Decoder, the question I would ask everybody is, “What are the trends you see in a pandemic? What’s going to snap back?”

Nothing’s snapping back, except maybe we’re not going to go work in offices the way that we used to. The economy has moved online in a real way. We are really dependent, in particular, on a handful of very large companies. I’ll pick on Apple because they have a lawsuit. They want to take a cut of every time you push a button on the iPhone.

Shopify enables small businesses to compete at that level. You have this economy of scale. You’re also partnered with those companies. You’re competitive with those companies. What is that relationship like? Where does Shopify slot in?

[Finkelstein] Shopify’s entire business model is predicated on: if small businesses do well, we do well. If they don’t do well, we don’t do well. And so the relationship we have, first of all, with small business, I think is very different than a lot of other technology companies where the small businesses, whether they sell a lot or not, they still need them for things like exposure and traffic and other all those things related to marketing and advertising. But the way we think about it is, the future of retail, in our view, is not going to be online, nor is it going to be offline. It’s not going to be on Instagram or TikTok or Facebook or Walmart.com, it’s going to be everywhere.

And the future of retail, in our view, is going to be about consumer choice. Now, that is very different. Commerce is about as old a construct as currency. We’re talking about since the beginning of time, you’ve had commerce and you’ve had currency, but it was always the retailer dictating to the consumer how to purchase.

So a great example is, go back when you were 10 years old or something and you wanted to go buy a video game at the video game store, There was a time it opened, at 9AM on a Saturday morning. Once you picked up the game on the shelf, you went into line. You had to use this credit card, but they didn’t accept that credit card. But basically, it’s always the same. It was always the retailer dictating to the consumer how to purchase.

The big shift that is happening that will exist long after the pandemic and, frankly, will be the future of retail, will be that consumers will simply say, “I want to buy however is most convenient for me.” And if you’re a really forward-thinking merchant like Allbirds, for example, and you know that it’s all about consumer choice, then you’re going to have a great physical store in San Francisco and New York City and a whole bunch of other places, you’re going to have a great online store, you’re going to cross-sell on things like Instagram and Facebook, you may also activate the TikTok ad channel because that’s when you can reach new potential customers. But what Shopify’s role in all that is, is that we want to integrate all of it into a centralized retail operating system.

So, think of Shopify as the hub of where you run your business day-to-day. When you say you’re going to work in the morning, you open up the Shopify admin, you have your inventory, your analytics, your reporting, you do fulfillment from there. One major spoke of that hub will be the online store. Another major spoke may be the offline store, but all the other spokes are going to be with Facebook and Google and Instagram and TikTok and all those companies.

And so our partnership with all these companies is predicated on this idea that we want to enable these merchants, these brands, to sell wherever they have customers. What is the modern-day town square? If you want to sell across a whole variety of age brackets, you need to sell everywhere. And that is really what Shopify’s role is, and that’s the reason why we partner with all these companies…

…[Patel] Oh, that’s really interesting. The reason I ask that is, Shopify is growing really fast. You were there in the early days. I keep coming back to this theme, you are now enabling companies to compete with the giants. You are yourself, in some ways competing with the giants. You are in some ways partnered with them.

As you have to make decisions there, you’re up against a lot of capital, a lot of market power, I’m definitely going to ask you about this Apple-Epic lawsuit. Sometimes you’re just up against other people controlling the interface, and just saying what you can and can’t do. How do you use your overall framework to make a decision, like we’re not going to have the Shop App become an actual marketplace for customers?

[Finkelstein] That’s actually an easier answer, because when you’re specific about that, you ask yourself, “What is best for the merchant?” Forget everything else. What is best for the merchant? During COVID, when COVID first hit, it hit hard in Canada around mid-March. We extended our trial from 14 days to 90 days. That’s a big change. There’s a real cost to moving a trial from 14 days to 90 days, nine zero.

But that was the right thing to do, even if it wasn’t the easy thing to do. Because it meant that more people that may have been on the fence about whether or not to digitalize their brick-and-mortar store, or to commercialize their hobby, or to enter the entrepreneurship ring, were able to do so with less risk, with less cost. That’s an easy decision, because you say, “What is best for the merchant there?”

The other thing is, we use a lens around Shopify, which is the idea of, we want to build a 100-year company. And we’re about 15 years in, so we have like 85 years left to go. When you use a long-term horizon of a 100-year company, you tend to not necessarily focus on short-term metrics or short-term results. You’re able to actually think a lot longer about what you’re trying to do here. And ultimately, just to be clear, what we’re trying to do here, is we want to be the world’s entrepreneurship company.

There is a company that owns search, and it’s Google, and they’ve done an amazing job organizing the world’s content and information. And there’s a company that owns social, and for the most part right now, it’s Facebook. But no company has yet to really own and make entrepreneurship something that is accessible by everyone, and we think we have the best shot at that.

So using that lens, it’s a lot easier to make decisions for the long run. It also means in some cases, that we will do something that maybe in the short run is not great for Shopify, but in the long run is great for the merchant. Or in the short run, it’s also great for the merchant, in the long run may eventually be good for Shopify. We can take these long-term bets, because we’re playing this ridiculously long game of a 100-year company.

4. The Pastry A.I. That Learned to Fight Cancer – James Somers

Computers learned to see only recently. For decades, image recognition was one of the grand challenges in artificial intelligence. As I write this, I can look up at my shelves: they contain books, and a skein of yarn, and a tangled cable, all inside a cabinet whose glass enclosure is reflecting leaves in the trees outside my window. I can’t help but parse this scene—about a third of the neurons in my cerebral cortex are implicated in processing visual information. But, to a computer, it’s a mess of color and brightness and shadow. A computer has never untangled a cable, doesn’t get that glass is reflective, doesn’t know that trees sway in the wind. A.I. researchers used to think that, without some kind of model of how the world worked and all that was in it, a computer might never be able to distinguish the parts of complex scenes. The field of “computer vision” was a zoo of algorithms that made do in the meantime. The prospect of seeing like a human was a distant dream.

All this changed in 2012, when Alex Krizhevsky, a graduate student in computer science, released AlexNet, a program that approached image recognition using a technique called deep learning. AlexNet was a neural network, “deep” because its simulated neurons were arranged in many layers. As the network was shown new images, it guessed what was in them; inevitably, it was wrong, but after each guess it was made to adjust the connections between its layers of neurons, until it learned to output a label matching the one that researchers provided. (Eventually, the interior layers of such networks can come to resemble the human visual cortex: early layers detect simple features, like edges, while later layers perform more complex tasks, such as picking out shapes.) Deep learning had been around for years, but was thought impractical. AlexNet showed that the technique could be used to solve real-world problems, while still running quickly on cheap computers. Today, virtually every A.I. system you’ve heard of—Siri, AlphaGo, Google Translate—depends on the technique.

The drawback of deep learning is that it requires large amounts of specialized data. A deep-learning system for recognizing faces might have to be trained on tens of thousands of portraits, and it won’t recognize a dress unless it’s also been shown thousands of dresses. Deep-learning researchers, therefore, have learned to collect and label data on an industrial scale. In recent years, we’ve all joined in the effort: today’s facial recognition is particularly good because people tag themselves in pictures that they upload to social networks. Google asks users to label objects that its A.I.s are still learning to identify: that’s what you’re doing when you take those “Are you a bot?” tests, in which you select all the squares containing bridges, crosswalks, or streetlights. Even so, there are blind spots. Self-driving cars have been known to struggle with unusual signage, such as the blue stop signs found in Hawaii, or signs obscured by dirt or trees. In 2017, a group of computer scientists at the University of California, Berkeley, pointed out that, on the Internet, almost all the images tagged as “bedrooms” are “clearly staged and depict a made bed from 2-3 meters away.” As a result, networks have trouble recognizing real bedrooms…

…In his late twenties, Kambe came home to Nishiwaki, splitting his time between the lumber mill and a local job-training center, where he taught computer classes. Interest in computers was soaring, and he spent more and more time at the school; meanwhile, more houses in the area were being built in a Western style, and traditional carpentry was in decline. Kambe decided to forego the family business. Instead, in 1982, he started a small software company. In taking on projects, he followed his own curiosity. In 1983, he began working with NHK, one of Japan’s largest broadcasters. Kambe, his wife, and two other programmers developed a graphics system for displaying the score during baseball games and exchange rates on the nightly news. In 1984, Kambe took on a problem of special significance in Nishiwaki. Textiles were often woven on looms controlled by planning programs; the programs, written on printed cards, looked like sheet music. A small mistake on a planning card could produce fabric with a wildly incorrect pattern. So Kambe developed SUPER TEX-SIM, a program that allowed textile manufacturers to simulate the design process, with interactive yarn and color editors. It sold poorly until 1985, a series of breaks led to a distribution deal with Mitsubishi’s fabric division. Kambe formally incorporated as BRAIN Co., Ltd.

For twenty years, BRAIN took on projects that revolved, in various ways, around seeing. The company made a system for rendering kanji characters on personal computers, a tool that helped engineers design bridges, systems for onscreen graphics, and more textile simulators. Then, in 2007, BRAIN was approached by a restaurant chain that had decided to spin off a line of bakeries. Bread had always been an import in Japan—the Japanese word for it, “pan,” comes from Portuguese—and the country’s rich history of trade had left consumers with ecumenical tastes. Unlike French boulangeries, which might stake their reputations on a handful of staples, its bakeries emphasized range. (In Japan, even Kit Kats come in more than three hundred flavors, including yogurt sake and cheesecake.) New kinds of baked goods were being invented all the time: the “carbonara,” for instance, takes the Italian pasta dish and turns it into a kind of breakfast sandwich, with a piece of bacon, slathered in egg, cheese, and pepper, baked open-faced atop a roll; the “ham corn” pulls a similar trick, but uses a mixture of corn and mayo for its topping. Every kind of baked good was an opportunity for innovation.

Analysts at the new bakery venture conducted market research. They found that a bakery sold more the more varieties it offered; a bakery offering a hundred items sold almost twice as much as one selling thirty. They also discovered that “naked” pastries, sitting in open baskets, sold three times as well as pastries that were individually wrapped, because they appeared fresher. These two facts conspired to create a crisis: with hundreds of pastry types, but no wrappers—and, therefore, no bar codes—new cashiers had to spend months memorizing what each variety looked like, and its price. The checkout process was difficult and error-prone—the cashier would fumble at the register, handling each item individually—and also unsanitary and slow. Lines in pastry shops grew longer and longer. The restaurant chain turned to BRAIN for help. Could they automate the checkout process?…

…For the BRAIN team, progress was hard-won. They started by trying to get the cleanest picture possible. A document outlining the company’s early R. & D. efforts contains a triptych of pastries: a carbonara sandwich, a ham corn, and a “minced potato.” This trio of lookalikes was one of the system’s early nemeses: “As you see,” the text below the photograph reads, “the bread is basically brown and round.” The engineers confronted two categories of problem. The first they called “similarity among different kinds”: a bacon pain d’épi, for instance—a sort of braided baguette with bacon inside—has a complicated knotted structure that makes it easy to mistake for sweet-potato bread. The second was “difference among same kinds”: even a croissant came in many shapes and sizes, depending on how you baked it; a cream doughnut didn’t look the same once its powdered sugar had melted.

In 2008, the financial crisis dried up BRAIN’s other business. Kambe was alarmed to realize that he had bet his company, which was having to make layoffs, on the pastry project. The situation lent the team a kind of maniacal focus. The company developed ten BakeryScan prototypes in two years, with new image preprocessors and classifiers. They tried out different cameras and light bulbs. By combining and rewriting numberless algorithms, they managed to build a system with ninety-eight per cent accuracy across fifty varieties of bread. (At the office, they were nothing if not well fed.) But this was all under carefully controlled conditions. In a real bakery, the lighting changes constantly, and BRAIN’s software had to work no matter the season or the time of day. Items would often be placed on the device haphazardly: two pastries that touched looked like one big pastry. A subsystem was developed to handle this scenario. Another subsystem, called “Magnet,” was made to address the opposite problem of a pastry that had been accidentally ripped apart.

A major development was the introduction of a backlight—the forerunner of the glowing rectangle I’d noticed in the Ueno store. It helped eliminate shadows, including the ones cast by a doughnut into a doughnut hole. (One of BRAIN’s patent applications explains how a pastry’s “chromatic dispersion” can be analyzed “to permit definitive extraction of contour lines even where the pastry is of such hole-containing shape.”) At one point, when it became clear that baking times were never consistent, Kambe’s team made a study of the phenomenon. They came up with a mathematical model relating bakedness to color. In the end, they spent five years immersed in bread. By 2013, they had built a device that could take a picture of pastries sitting on a backlight, analyze their visual features, and distinguish a ham corn from a carbonara sandwich.

That year, BakeryScan launched as a real product. Today, it costs about twenty thousand dollars. Andersen Bakery, one of BRAIN’s biggest customers, has deployed the system in hundreds of bakeries, including the one in Ueno station. The company says it’s cut down on training time and has made the checkout process more hygienic. Employees are more relaxed and can talk to customers; lines have been virtually eliminated. At first, BakeryScan’s performance wasn’t perfect. But the BRAIN team included a feedback mechanism: when the system isn’t confident, it draws a yellow or red contour around a pastry instead of a green one; it then asks the operator to choose from a small set of best guesses or to specify the item manually. In this way, BakeryScan learns. By the time I encountered it, it had achieved an even higher level of accuracy…

…In early 2017, a doctor at the Louis Pasteur Center for Medical Research, in Kyoto, saw a television segment about the BakeryScan. He realized that cancer cells, under a microscope, looked kind of like bread. He contacted BRAIN, and the company agreed to begin developing a version of BakeryScan for pathologists. They had already built a framework for finding interesting features in images; they’d already built tools allowing human experts to give the program feedback. Now, instead of identifying powdered sugar or bacon, their system would take a microscope slide of a urinary cell and identify and measure its nucleus.

BRAIN began adapting BakeryScan to other domains and calling the core technology AI-Scan. AI-Scan algorithms have since been used to distinguish pills in hospitals, to count the number of people in an eighteenth-century ukiyo-e woodblock print, and to label the charms and amulets for sale in shrines. One company has used it to automatically detect incorrectly wired bolts in jet-engine parts. At the SPring-8 Angstrom Compact Free Electron Laser (sacla), in Hyogo, a seven-hundred-metre-long experimental apparatus produces high-intensity laser pulses; since reading the millions of resulting pictures by hand would be impractical, a few scientists at the sacla facility have started using algorithms from AI-Scan. Kambe said that he never imagined that BakeryScan’s technology would be applied to projects like these.

5. 99 Additional Bits of Unsolicited Advice – Kevin Kelly

• That thing that made you weird as a kid could make you great as an adult — if you don’t lose it.
• If you have any doubt at all about being able to carry a load in one trip, do yourself a huge favor and make two trips.
• What you get by achieving your goals is not as important as what you become by achieving your goals. At your funeral people will not recall what you did; they will only remember how you made them feel.
• Recipe for success: under-promise and over-deliver.
• It’s not an apology if it comes with an excuse. It is not a compliment if it comes with a request.
• Jesus, Superman, and Mother Teresa never made art. Only imperfect beings can make art because art begins in what is broken.
• If someone is trying to convince you it’s not a pyramid scheme, it’s a pyramid scheme..
  
• …Train employees well enough they could get another job, but treat them well enough so they never want to.
• Don’t aim to have others like you; aim to have them respect you.
• The foundation of maturity: Just because it’s not your fault doesn’t mean it’s not your responsibility.
• A multitude of bad ideas is necessary for one good idea.
• Being wise means having more questions than answers.
• Compliment people behind their back. It’ll come back to you.
• Most overnight successes — in fact any significant successes — take at least 5 years. Budget your life accordingly.
• You are only as young as the last time you changed your mind..
  
• …When a child asks an endless string of “why?” questions, the smartest reply is, “I don’t know, what do you think?
• To be wealthy, accumulate all those things that money can’t buy.
• Be the change you wish to see
• When brainstorming, improvising, jamming with others, you’ll go much further and deeper if you build upon each contribution with a playful “yes — and” example instead of a deflating “no — but” reply.
• Work to become, not to acquire.
• Don’t loan money to a friend unless you are ready to make it a gift.
• On the way to a grand goal, celebrate the smallest victories as if each one were the final goal. No matter where it ends you are victorious.
• Calm is contagious.
• Even a foolish person can still be right about most things. Most conventional wisdom is true.
• Always cut away from yourself.
• Show me your calendar and I will tell you your priorities. Tell me who your friends are, and I’ll tell you where you’re going.
• When hitchhiking, look like the person you want to pick you up.

6. The Golden Age of Fraud is Upon Us – Ben Carlson

If Charles Ponzi were alive today, I have no doubt that he would be able to raise capital from investors, probably in the form of a SPAC. Many investors would laud him for being a genius as he bilked investors out of millions of dollars.

When I was researching the history of financial scams for Don’t Fall For It the one thing that jumped out above all else is how similar financial frauds are across time and place. They typically involve new technologies, people with extraordinary sales skills and the insatiable human desire for get-rich quick schemes.

Despite the fact that people have been getting duped by hucksters and charlatans for centuries, there was one period that kept coming up over and over again in my research — the 1920s.

It was the golden age of financial fraud.

The Roaring 20s had everything a con-artist looking to dupe people out of their money could ask for — innovation, new financial products, a booming economy, rising markets, new and exciting technologies, loose lending standards, new communication tools and people getting rich all over the place.

This period included Dr. John Brinkley, a fake doctor, who told people he could solve their fertility problems by implanting goat testicles into the male scrotum. He quickly became wealthy by promising to cure people’s ailments with his secretive medicines and procedures.

Then there was the match king, Ivar Kreuger, who used his match factories to create obscene amounts of leverage and offer insanely high rates of return to investors who put money into his ever-growing empire of new financial products. Kreuger created one of the biggest financial scams no one has ever heard of. It all fell apart in the Great Depression.

The Roaring 20s was a time of innovation in the financial markets but there were still bucket shops where people went to gamble their money on the markets. A scam artist nicknamed “The Kid” would set up fake bucket shops promising people the ability to buy $5 stock certificates for $1.

What was the catch?

Of course, those certificates were fake. He ran this same scam in multiple cities all over the country.

There are endless stories like this from that period.

The financial markets feel wonderful right now. It would have been nearly impossible to not make money over the past year or so. The economy could legitimately be setting up for our own version of the roaring 20s.

Yet these good times could also be setting us up for a new golden age of financial fraud.

You have new and exciting innovations happening all around us. A new asset class is being established right before our eyes in cryptocurrencies. Tens of thousands of people have become multi-millionaires in a matter of years.

All of the scam artists, hucksters and charlatans have to be licking their chops right now.

During bull markets and economic boom times people witness others becoming very wealthy. So they let their guard down, take more risk than they reasonably should and trust people they shouldn’t while chasing easy riches.

And the people most susceptible to financial fraud tend to be the more highly educated investors who have already made a ton of money.

One of the studies I reference in my book discovered people who were caught up in financial scams were actually more knowledgeable about markets and investing than people who weren’t involved in scams. This makes sense when you realize the people with the most money have the biggest target on their back.

7. What Is an Entertainment Company in 2021 and Why Does the Answer Matter? – Matthew Ball

Entertainment companies today don’t make movies or TV shows. They don’t even mainly “tell stories”. They manage the proprieties of those stories in such a way to create and sustain deep affinity, i.e., build love. 

This is a very different rubric than the media industry is used to. It also suggests that many low-margin businesses, products, or titles create more value than an income statement might realize. Think about the correlation between the pajamas you wore growing up and the adaptations/films you deeply want to succeed, versus those you’re largely indifferent to. It’s doubtlessly true that the comics divisions of Warner Bros.’ DC, and Disney’s Marvel deliver minimal revenues and dilutive margins. But comics remain a low-cost channel for story and love building. Notably, almost all of the Marvel Cinematic Universe’s forthcoming series are from the last (and largely unknown) decade of comics. It doesn’t matter to maestro Kevin Feige that his films have eclipsed not just the comics by several literal orders of magnitude, nor even all of film history. These comics are where new stories are created, discovered, and refined. The now globally famous character of Miles Morales first appeared in 2011, Ms. Marvel (who has her own MCU TV series this year) comes from 2013. Riri Williams, who will take up Iron Man’s mantle in her own MCU TV series first appeared less than five years ago.

This trend also means that Hollywood needs to solve its video game problem. The category simply matters too much to audiences. It is also becoming more social, immersive, and narratively rich each day. Consider the evolution of TV/video versus games over the past fifteen years. The MCU films and series of 2021 are more interconnected, complex, and visually impressive than 2008’s Iron Man, but they’re still rather similar. Games, meanwhile, have been entirely reinvented for live services, social multiplayer, and UGC. Now, we’re only a few years from the point in which millions will come home to join a live event with a real-time motion capture hero like Tony Stark (who will likely not be performed by Robert Downey Jr., even though it will look like him) alongside their friends. Not long after, these will be integrated into the weekly release schedule a TV series, thereby enabling the audience to help the heroes as they watch them.

This also connects to Disney’s greatest love advantage: it’s theme parks. For all the success of Disney+, the strongest, most profitable, most defensible part of Disney’s business is its capex-heavy, physical theme parks. As I wrote in “Digital Theme Park Platforms: The Most Important Media Businesses of the Future”, “there is no simple way to quantify how important this business unit is to Disney… The financial role is obvious… [but] There is nothing that can compare to the impact of a child being hugged by her heroes. The ability to enjoy your favorite IP as “you” is unique and lasts a lifetime.” The problem with Disney’s parks, however, is that they can only ever reach a tiny portion of Disney’s fans (and rarely its lower income and foreign fans). And it takes tens of billions of dollars and close to a decade to reach more (which is why most of Disney’s competitors lack parks, despite their importance and profitability).

Digital theme parks, however, “are always ‘open’, ‘everywhere’, ‘full of your friends’, and impervious to COVID-19… They also boast an even larger (i.e. infinite) number of attractions and rides, none of which need be bound by the laws of physics or the need for physical safety, and all of which can be rapidly updated and personalized. These digital parks also allow for much greater self-expression (e.g. avatars, skins).” And soon, every fan will be able to receive a hug from the actual Iron Man.

This isn’t to say an IP holder needs to own a gaming studio, per se. Obviously that’s an advantage in a number of ways, but at minimum, every IP owners needs cohesive and comprehensive strategy for interactivity that goes beyond MGs, GGs, and avatar licensing.

What does all of this mean for the industry overall? Well, one of the key lessons over the past several decades in entertainment is one of “more”. We want more of the stories we love, more often, in more places, and more media, always. We might gripe about how Disney will never let Star Wars end or that endless sequels undermine the significance of any films that came before, but the truth is only we want something to “end” … until immediately after it does. Give us The Mandalorian, even as we tire of the sequel trilogy, and then second season of The Mandalorian one year later. We hated the prequels but delight at the idea of a spinoff of Ewan McGregor’s Obi-Wan. Two Star Wars games aren’t enough, nor is four. Just look at gaming over the past year and a half. Yes, the pandemic led us to play more games, but mostly we played our favorite games more.

If our biggest stories become bigger, and ultimately, we want endless amount of “more” from our favorite stories, then most of us will hit a sort of “Dunbar’s Number” for franchises. The bigger Marvel (or anyone) gets narratively, in love building, and in monetization, the harder it will be for a Power Rangers reboot or Dark Universe or Transformers Ecosystem to grow. Consider the mocap example. We’re not going to run home to mocap every hero we know of, even if we watch a diverse selection of hero movies. This means fewer stories will collect ever-more of the benefit.

There used to be a fight to be one of the winning comic books, video games, or film franchises. This meant there was room for many winners and that the reach of any winner was limited. Soon, it will be a fight for dominance between all franchises and across all mediums. The major stories will expand into all categories, from film to TV to podcasts, and be envisioned as interactive experiences. And as long as they continue to offer more “more”, there’s little reason for a fan to look (and invest) elsewhere.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. Who Disrupts the Disrupters? – Packy McCormick

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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