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

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

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

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

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

Here are the articles for the week ending 30 August 2020:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5. Alternative Forms of Wealth – Morgan Housel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. 10 years ago – Joshua Brown

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

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

I made the bet.

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

2. When The Magic Happens – Morgan Housel

The 1930s were a disaster.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. Tencent: The Ultimate Outsider – Packy McCormick

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Questions to consider when evaluating developer mindshare:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What We’re Reading (Week Ending 09 August 2020)

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

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

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

Here are the articles for the week ending 9 August 2020:

1. Why Markets Don’t Seem to Care If the Economy Stinks – Barry Ritholtz

Start with some of 2020’s worst-performing industries: Year-to-date (as of the end of July), these include department stores, down 62.6%; airlines, off 55%; travel services, down 51.4%; oil and gas equipment and services, down 50.5%; resorts and casinos, down 45.4%; and hotel and motel real estate investment trusts, off 41.9%. The next 15 industry sectors in the index are down between 30.5% and 41.7%. And that’s four months after the market rebounded from the lows of late March.

These are highly visible industries, with companies that are well-covered by the news media with household names known to many consumers. Retailers are everywhere we go. Gas stations, chain restaurants and hotels are ubiquitous in cities and suburbs across the country.

So although high visibility industries may be of considerable significance to the economy, they are not very significant to the capitalization-weighted stock market indexes.

Consider how little these beaten-up sectors mentioned above affect the indexes. Department stores may have fallen 62.3%, but on a market-cap basis they are a mere 0.01% of the S&P 500. Airlines are larger, but not much: They weigh in at 0.18% of the index. The story is the same for travel services, hotel and motel REITs, and resorts and casinos.

The market is telling us that these industries just don’t matter very much to stock market performance. And the sectors that do matter? Consider just four industry group — internet content, software infrastructure, consumer electronics and internet retailers — account for more than $8 trillion in market value, or almost a quarter of total U.S. stock market value of about $35 trillion. Take the 10 biggest technology companies in the S&P 500 and weight them equally, and they would be up more than 37% for the year. Do the same for the next 490 names in the index, and they are down about 7.7%. That shows just how much a few giants matter to the index.

2. Open Secrets – Malcolm Gladwell

The national-security expert Gregory Treverton has famously made a distinction between puzzles and mysteries. Osama bin Laden’s whereabouts are a puzzle. We can’t find him because we don’t have enough information. The key to the puzzle will probably come from someone close to bin Laden, and until we can find that source bin Laden will remain at large.

The problem of what would happen in Iraq after the toppling of Saddam Hussein was, by contrast, a mystery. It wasn’t a question that had a simple, factual answer. Mysteries require judgments and the assessment of uncertainty, and the hard part is not that we have too little information but that we have too much. The C.I.A. had a position on what a post-invasion Iraq would look like, and so did the Pentagon and the State Department and Colin Powell and Dick Cheney and any number of political scientists and journalists and think-tank fellows. For that matter, so did every cabdriver in Baghdad.

The distinction is not trivial. If you consider the motivation and methods behind the attacks of September 11th to be mainly a puzzle, for instance, then the logical response is to increase the collection of intelligence, recruit more spies, add to the volume of information we have about Al Qaeda. If you consider September 11th a mystery, though, you’d have to wonder whether adding to the volume of information will only make things worse. You’d want to improve the analysis within the intelligence community; you’d want more thoughtful and skeptical people with the skills to look more closely at what we already know about Al Qaeda. You’d want to send the counterterrorism team from the C.I.A. on a golfing trip twice a month with the counterterrorism teams from the F.B.I. and the N.S.A. and the Defense Department, so they could get to know one another and compare notes.

3. How to Understand COVID-19 Numbers – Caroline Chen and Ash Ngu

“Cases going up or down tells you a fair bit about what’s going on at the moment in terms of transmission of the virus — but it’s only valid if we’re testing enough people,” Fox said.

When there aren’t enough tests available, as was the case in New York in March, the number of cases reported will be an undercount, perhaps by a lot. That’s where case positivity rates come in: that measures the percentage of total tests conducted that are coming back positive. It helps you get a sense of how much testing is being done overall in a region.

“WHO guidelines say we want that to be below 5%,” Fox noted. When a positivity rate is higher, epidemiologists start worrying that means only sicker people have access to tests and a city or region is missing mild or asymptomatic cases. When almost all of the tests come back negative, on the other hand, it’s a good indicator that a locality has enough tests available for everyone who wants one, and public health officials have an accurate picture of all the infections, Fox said.

4. How to Outrun a Dinosaur – Cody Cassidy

The incredibly powerful, long-legged Tyrannosaurus was slow for the same mathematical reason its demise in the mine shaft was so eruptive. Like surface area, bone strength only squares in strength as volume cubes. The result is that as an animal increases in size, it requires proportionally more muscle and leg bone to stand, move, and run. Beyond a certain size, the latter becomes physically impossible. For all its muscular bulk, the Tyrannosaurus rex’s leg bones would have shattered under anything more than the stress of a brisk jog. Judging by its mass, muscle, and bones, Snively doesn’t believe an adult Tyrannosaurus rex could have moved faster than 12 or 13 miles per hour. (Though 12 miles per hour approaches the top speed of a typical human, depending on conditioning—it equates to a 20-second 100 meter dash or a 5-minute mile—the T. rex’s slow acceleration and inspiring teeth would give the average runner a reasonable chance of outsprinting or outmaneuvering the lumbering predator.)1

5. Robinhood Has Lured Young Traders, Sometimes With Devastating Results – Nathaniel Popper

But at least part of Robinhood’s success appears to have been built on a Silicon Valley playbook of behavioral nudges and push notifications, which has drawn inexperienced investors into the riskiest trading, according to an analysis of industry data and legal filings, as well as interviews with nine current and former Robinhood employees and more than a dozen customers. And the more that customers engaged in such behavior, the better it was for the company, the data shows.

More than at any other retail brokerage firm, Robinhood’s users trade the riskiest products and at the fastest pace, according to an analysis of new filings from nine brokerage firms by the research firm Alphacution for The New York Times.

In the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers, per dollar in the average customer account in the most recent quarter. They also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size, according to the analysis.

6. Do You Know the Difference Between Being Rich and Being Wealthy? – Jason Zweig

Mr. Housel begins with a shocking anecdote he witnessed himself: A technology multimillionaire handed a hotel valet thousands of dollars in cash to go buy fistfuls of gold coins at a nearby jewelry store. The executive then flung the coins, worth about $1,000 apiece, into the Pacific Ocean one at a time, skipping them across the water like flat rocks, “just for fun.”

To that man, money was a plaything. (He later went broke, Mr. Housel writes.) To Ronald Read, however, money was possibility. Mr. Read spent decades pumping gas and working as a janitor in Brattleboro, Vt. After he died in 2014 at the age of 92, his estate was able to give more than $6 million to local charities—because he had scrimped and put every spare penny into stocks that he held for decades.

How, asks Mr. Housel, did a janitor “with no college degree, no training, no background, no formal experience and no connections massively outperform” many professional investors?

7. Those Astronomical Returns Aren’t What They Seem – Aaron Brown

Every so often there are news reports of someone generating seemingly impossible returns in the financial markets. Several media outlets reported recently that hedge fund manager Bill Ackman made a 9,530% return in March, turning $27 million into $2.6 billion. So-called tail-risk hedge fund Universa Investments LP posted a 4,144% return that same month.

Most people probably can’t easily process these numbers or relate them to more normal performance like earning 2% on a bond or 9% in an equity mutual fund. It feels like lottery-ticket territory, which breeds doubts that the results are true. This is unfortunate, because there is useful information in the reports, but it’s presented in a highly misleading way.

The best way to think about these gains is that they were essentially insurance payouts divided by a premium payment. For example, suppose you pay $100 per month for homeowner’s insurance on a house valued at $250,000. One day the house burns down and you collect $250,000. Would you call that a 249,900% return on the $100 monthly premium? No, you’d say you recouped 100% of the $250,000 pre-fire value of the house. You weren’t trying to make a good trade with your monthly premium payment, you were trying to protect the value of your housing investment.

What We’re Reading (Week Ending 19 July 2020)

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!

Here are the articles for the week ending 19 July 2020:

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

We are lucky that a lot of today’s economy can shift seamlessly into remote work. It wouldn’t have been possible to this extent if Covid-19 struct in 2010 instead of 2020.

But it again sets up a stark contrast of haves and have nots, and groups of people who are experiencing Covid-19 in different ways.

Massachusetts did a survey in April that tells the story:

88% of those with an advanced degree can work from home, vs. 35% with a high school degree or less.
75% of those making more than $150,000 a year can work from home, vs. 44% of those earning less than $50,000 a year.
74% of salaried workers can get their jobs done from home, vs. 40% of hourly workers.

There is a long history of economies being hit with downpours. But this is the first in which perhaps 70% of the economy has a sturdy umbrella while 30% is left to get soaked…

… In 1900 roughly 800 per 100,000 Americans died each year from infectious disease. By 2014 that was 45.6 per 100,000 – a 94% decline…

…This decline is probably the best thing to ever happen to humanity.

To follow that sentence with “but” is a step too far. It’s a wholly good thing.

However, it creates an anomaly.

We are medically more prepared to fight disease than ever before. But, psychologically, the mere thought of a pandemic has never felt so foreign, so unprecedented, so upending.

What was a tragic but expected part of life 100 years ago is now a tragic and inconceivable part of life in 2020.

2. 5 Thoughts on a World with No Yield – Ben Carlson

If you’re waiting for valuations to revert back to some magical 15x average CAPE ratio from 1871 you may be waiting for a long time if the low yield environment is here for some time.

The best argument against this line of thinking is a place like Japan where interest rates have been on the floor since 1990. Rates have been low or negative in many European countries for a number of years now too.

My counterargument to that case would be the United States now makes up 55% of the global equity market cap. Fifty percent of all Americans take part in the stock market (it was just 1% of the population in the Great Depression). Americans are on their own when it comes to saving and investing for retirement and we have a much worse social safety net than these other countries.

At the height of the dot-com bubble, the highest stock market valuations in history, investors could still earn 5-6% yields on U.S. Treasuries. That is not the case today.

Valuation is not useless but it does require context.

3. Charlie Songhurst – Lessons from Investing in 483 Companies – Patrick OShaughnessy and Charlie Songhurst

There’s a book by Will Durant called Caesar and Christ, it’s a whole history of Rome, from the founding to 500 AD and sort of the full history and afterwards. So it’s interesting to think, how would you invest through that? Do you buy or sell Roman real estate when Caesar’s murdered? Cause you get a civil war and you get chaos, but then you get Augustus and peace afterwards. Then when you get this whole state of bad emperors and it looks like everything’s going to fall apart, maybe you would sell and then you get Hadrian and the good emperors and you get a great hundred years.

It makes you think about sort of volatility and about having to make decisions with only information available at that time. And what’s so interesting is, you do get this sort of pattern of going from a power and sort of fashion being to have your base in city of Rome, to being out in Capua or out in the smaller provinces. And that cycle seems to co-exist for like the 500 years of history. And if you look at London, I think the peak population was in the 1930s. I think it’s still higher than the present population. Or it may just have peaked so maybe that’s the beginning of one of these great 40 year demographic changes, but people move back to the suburbs or not. This is speculation. I certainly don’t have as much conviction on it as I do on startup stuff…

…Often my enthusiasm has been greater than my competence and it’s the people that bet on the enthusiasm more than the competence, I’m eternally grateful to them.

4. Netflix CEO Reed Hastings Responds To Whitney Tilson: Cover Your Short Position. Now – Reed Hastings

Next in the litany of Whitney threats is market saturation. In 2011, this is unlikely to affect us. Streaming is growing rapidly; it is propelling Hulu, YouTube, Netflix and others to huge growth rates. Streaming adoption will likely follow the classic S curve, and we’re still on the first part (acceleration) of the S curve. Since we expanded into streaming, Netflix net subscriber additions have been 1.9m in 2008, 2.9m in 2009, and over 7m this year (estimated). While saturation will happen eventually, given the recent huge acceleration of our business specifically, and streaming generally, saturation seems unlikely to hit in the short term.

The next issue is what Whitney calls our “weak content.” While Whitney may think “Family Guy” is weak content, our subscribers do not. Furthermore, our huge subscriber growth to date has been built on this “weak content,” so imagine how much upside we have as we improve our content, as we are always trying to do. I think what Whitney may be misunderstanding is that at $7.99 per month, consumers don’t expect to have everything under the sun. A variant of this misunderstanding is when DirecTV (DTV) advertises against Netflix, calling out some Netflix content weaknesses. When an $80 per month service is picking on an $8 per month service, the $8 per month service just gets more attention from consumers and grows even faster.

5. 3 lessons from owning FAANG stocks for over a decade – Chin Hui Leong

In January 2007, I bought shares of a little known, US-based business doing DVD rentals by mail. Little did I know that, by doing so, I had bought the first of a set of five coveted stocks that are now affectionately known as “FAANG”.

You see, that DVD-rental business slowly but surely morphed into a massive global online streaming service. The company’s name? Netflix (NASDAQ: NFLX).

I still own around half of my shares from 13 years ago, and those shares are up over 160 times my original cost.

But that was not all.

6. State of the Cloud 2020 – Byron Deeter, Elliott Robinson, Hansae Catlett, Mary D’onofrio

By 2020 it’s estimated that the average cost of a data breach will be over $150 million, with the global annual cost forecast to be $2.1 trillion. New laws such as GDPR and CCPA are creating the demand for enterprises to tighten their data privacy practices.

“While many tech companies were architected to collect data, they were not necessarily architected to safely store data. Today there’s not just a rift, but a chasm between where data privacy technology, processes, and regulations should be and where they are, thus creating massive amounts of “privacy debt,” wrote Partner Alex Ferrara in his Data Privacy Engineering Roadmap.

“Like technical debt, privacy debt requires reworking internal systems to adapt and build to the newest standards, which will not only make consumers happier but also make companies better.”

We’re seeing a new category of technology dedicated to helping enterprises, large and small, comply with global privacy regulations and help protect consumer data. For example, last year Bessemer invested in BigID’s Series C, a data intelligence platform that finds, analyzes, and de-risks identity data, allowing enterprises to understand where their sensitive data lives, at scale.

7. “One of the Investment Greats” Explains His Portfolio Strategy – Robert Korajczyk and Lou Simpson

Well, I think you need a combination of quantitative and qualitative skills. Most people now have the quantitative skills. The qualitative skills develop over time.

But, as Warren used to tell me, “You’re better off being approximately right than exactly wrong.” Everyone talks about modeling—and it’s probably helpful to do modeling—but if you can be approximately right, you will do well.

For example, one thing you need to determine is: Are the company’s leaders honest? Do they have integrity? Do they have huge turnover? Do they treat their people poorly? Does the CEO believe in running the business for the long term, or is he or she focused on the next quarter’s consensus earnings?

What We’re Reading (Week Ending 12 July 2020)

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

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

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

Here are the articles for the week ending 12 July 2020:

1. Habits: The Art of Compounding Choices – Oliver Sung

The key to designing the environment in a way that actually works for sustaining habits is to scale the desired habit down to the smallest, simple thing.

Want to read 20 book pages every night? Leave a book on your pillow every day you wake up and make your bed.
Want to drink more water and less alcohol? Make water the default choice by having nothing else in the fridge.
Want to save more money? Automate your savings transfers and keep the savings account at a different bank than your checking account.
Want to practice more guitar? Place it right in the center of your living room.

Forming the right habits is really all about thinking ahead to the second-order consequences of even the smallest choices and decisions. Secondly, it’s about creating the right system to make them incredibly easy to start and impossible to fail.

2. The Coffee Can Edge – John Huber

The coffee can portfolio is one of the simplest and most interesting concepts in all of portfolio management theory. It’s a term coined in 1984 by Robert Kirby, a portfolio manager who noticed that one of his clients did better than his own portfolio by secretly using all of Kirby’s buy recommendations but ignoring his sell recommendations. This particular client would put around $5,000 into each stock that Kirby bought, and then never touched the stock again. He put the stock certificate in the proverbial “coffee can” and didn’t think about it again. The results of each individual decision varied widely. Some stocks lost a majority of their value, some went up by an average amount, but a few performed incredibly well. The biggest winner was worth $800,000 (on a $5,000 initial investment).

One benefit of the coffee can approach is it forces you to think about what companies will be looking like in 5-10 years, as opposed to next year or the year after, which is the time frame that most investors (even those in the value investing community) tend to reside. The coffee can incentivizes you to think about two types of companies: the durable businesses that are likely to maintain their competitive position; or the businesses with the potential for much greater earning power in the future (and thus much greater value).

I wrote a series five years ago discussing the importance of returns on capital inside of a business, with the idea that there are two groups of companies in the world: those that are increasing their underlying value per share, and those that are eroding it. While it’s possible to make money buying stocks of mediocre businesses perhaps by buying something cheap and flipping it a year later, I’ve always thought that the vast majority of losses in the stock market come from picking the wrong business, not picking the wrong valuation on the right business.

3. Three people with inherited diseases successfully treated with CRISPR – Michael Le Page

Two people with beta thalassaemia and one with sickle cell disease no longer require blood transfusions, which are normally used to treat severe forms of these inherited diseases, after their bone marrow stem cells were gene-edited with CRISPR.

Result of this ongoing trial, which is the first to use CRISPR to treat inherited genetic disorders, were announced today at a virtual meeting of the European Hematology Association.

“The preliminary results… demonstrate, in essence, a functional cure for patients with beta thalassaemia and sickle cell disease,” team member Haydar Frangoul at Sarah Cannon Research Institute in Nashville, Tennessee, said in a statement.

4. Markets Bombed, Investors Carried On – Jason Zweig

Almost 95% of the 5 million investors in 401(k) and similar retirement plans run by Vanguard Group didn’t make a single trade in the first four months of 2020. Fewer than 1% moved their money entirely out of stocks.

All told, including 8 million households with individual accounts, only 12% of Vanguard’s investors traded between late February and early May, says Karin Risi, managing director of Vanguard’s retail investor group. Among those who did trade, two-thirds bought stocks rather than selling.

From late February through the end of March, fewer than 3% of the 2.2 million participants in retirement plans run by T. Rowe Price Group Inc. made any changes to their portfolios. “It’s a testament to people learning that this is a long-term investment,” says Kevin Collins, head of T. Rowe Price’s retirement-plan services.

5. The Broker Who Saved America – Joshua M. Brown

Solomon uses this role to access enemy military installations and to undermine German support for the Brits. He is sabotaging from the inside, talking the Hessians out of fighting for the English king. When these insurgency activities are discovered, Solomon is arrested again. This time, he pulls out a gold coin that had been sewn into his clothes and bribes a guard to let him escape. He flees to Philadelphia and arranges for his wife and son to meet him there. For the second time, Solomon has arrived in a new American city penniless and forced to start over.

By this time, the tide has turned and the Continental Army is beginning to pile up victories. The army is still, however, massively underfunded. General Washington is without readily available cash and is hamstrung by this lack of financial flexibility. He makes frequent requests to the Continental Congress to send money, but very little money comes. Into this breach steps Haym Solomon, ready to serve in the capacity in which he is best suited – as broker to the fledgling America.

Now that his merchant finance business is up and running again, Solomon begins funneling his own personal profits from the enterprise directly to the revolution. According to records of the time, he extends no-interest “loans”, many of which were never repaid, to James Monroe, Thomas Jefferson, James Madison, and even Don Francesco Rendon, the Spanish Court’s secret ambassador.

6. News by the ton: 75 years of US advertising – Ben Evans

It’s very common for people – especially newspaper people – to look at the newspaper and internet series in these charts and conclude that all the money went from newspapers to internet. There’s also a tendency to try to calculate Google and Facebook’s share of that ‘internet’ line. This can get you onto shaky ground quite quickly. As that change in share of GDP (and my phase ‘suspiciously flat’) should suggest, what’s actually happened is that the market has been both reallocated and repriced, a lot of money left the data that’s being captured here, and a lot of other money came in.

So: if you talk to people at both Google and Facebook and in the agency world, you’ll hear that perhaps two thirds to three quarters of money spent on Google and Facebook is money that was never spent on traditional advertising – it’s coming from SMEs and local businesses that might have spent in classified at most but probably wouldn’t have done even that. $60bn of consumer spending went through Shopify last year – it’s safe to assume those vendors spent money on advertising, but how many of them would have bought an ad in a local newspaper? This has also come at much lower prices: Facebook in particular has been massively deflationary to online advertising: it offers vast quantities of relevant advertising inventory at much lower prices and much lower entry costs than you’d have needed in print, let alone TV.

7. 99% of Long-Term Investing Is Doing Nothing; the Other 1% Will Change Your Life – Morgan Housel

Napoleon’s definition of a military genius was, “The man who can do the average thing when all those around him are going crazy.” It’s the same in investing.

Building wealth over a lifetime doesn’t require a lifetime of superior skill. It requires pretty mediocre skills — basic arithmetic and a grasp of investing fundamentals — practiced consistently throughout your entire lifetime, especially during times of mania and panic…

… To demonstrate my meaning, I used Yale economist Robert Shiller’s market data going back to 1900 and created three hypothetical investors. Each has saved $1 a month, every month, since 1900.

The first is Betty. She doesn’t know anything about investing, so she dollar-cost averages, investing $1 in the S&P 500 every month, rain or shine.

Sue, a CNBC addict, invests $1 a month into the S&P, but tries to protect her wealth by saving cash when the economy is in recession, deploying her built-up hoard back into the market only after the economy officially exits a recession.

Bill, a mutual fund manager whose only incentive is to look right in the short run, invests $1 a month, but stops investing in stocks six months after a recession begins, and only puts his money back into the market six months after a recession ends.

After 113 years of investing, who’s won? Boring Betty takes it by a mile:

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

What We’re Reading (Week Ending 5 July 2020)

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!

Here are the articles for the week ending 5 July 2020:

1. 40 Things I’ve Learned in 40 Years – Cullen Roche

1) Always try to be a good person. This is the most obvious one and also often the hardest one. Life is hard and everyone is fighting their own personal battles. Help them through it by being kind enough to try to understand their battle.

2) Never mistake money for wealth. The person who mistakes money for wealth will live a life accumulating things, all the while mistaking a life of owning for a life of living.

3) Never stop learning. Life is one big lesson and the older you get the more you’ll realize how little you know. Never lose an unquenchable thirst for knowledge and understanding.

2. Why We’re Blind to Probability – Morgan Housel

Let’s say you’re a 75-year-old economist. You started your career at age 25. So you have half a century of experience predicting what the economy will do next. You’re as seasoned as they come.

But how many recessions have there been in the last 50 years?

Seven.

There have only been seven times in your career that you’ve been able to measure your skills.

If you want to really judge someone’s abilities you would compare dozens, hundreds, or thousands of attempts against reality. But a lot of fields don’t generate that many opportunities to measure. It’s no one’s fault; it’s just the reality of the real world is messier than an idealized spreadsheet.

It’s an important quirk, because if someone says “there’s an 80% chance of a recession,” the only way to tell if they’re right is to compare dozens or hundreds of times they made that exact call and see if it came true 80% of the time.

If you don’t have dozens or hundreds of attempts – sometimes you have one or two – there’s no way to know whether someone who says “75% chance of this,” or “32% chance of that” is right or not. So we’re all left guessing (or preferring those who profess certainty, which is easier to measure).

3. Behind the Fall of China’s Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee – Jing Yang

A group of Luckin employees had already begun helping sales along by engineering fake transactions, starting the month before the IPO, according to people familiar with the operation. The employees used individual accounts registered with cellphone numbers to purchase vouchers for numerous cups of coffee. Between 200 million and 300 million yuan of sales ($28 million to $42 million) were fabricated in this manner, according to a person familiar with the matter.

The undertaking became more complex. In late May 2019, orders began flooding in under a fledgling line of business that involved selling coffee vouchers in bulk to corporate customers, according to internal records reviewed by the Journal.

Alongside bona fide voucher sales, to a few regular clients such as airlines and banks, the records show numerous purchases by dozens of little-known companies in cities across China. These companies repeatedly bought bundles of vouchers, often in large amounts. Rafts of orders sometimes came in during overnight hours.

Qingdao Zhixuan Business Consulting Co. Ltd., situated in China’s northern Shandong province, bought 960,000 yuan ($134,000) worth of Luckin vouchers in a single order, according to the documents. They show it made more than a hundred similar purchases from May to November of 2019.

Mainland China and Hong Kong corporate-registry records link this company to a relative of Mr. Lu, to an executive of Mr. Lu’s previously founded Ucar Inc. and to a Luckin executive, via a complex web of other companies and their directors and shareholders. Qingdao Zhixuan also has the same telephone number as a branch of CAR Inc. and is registered with a Ucar email address.

4. How Big is the Racial Wealth Gap? – Nick Maggiulli

Unfortunately, even when we control for a household’s education level, the wealth gap still exists between White and non-White households. In fact, the median Black household with a college degree has a net worth similar to the median White household without a high school diploma.

Yes, you read that right. A college degree barely gets a Black household past where a White household is with no high school education.

5. The Anthropause: How the Pandemic Gives Scientists a New Way to Study Wildlife – Matt Simon

“There is an amazing research opportunity, which has come about through really tragic circumstances,” says lead author Christian Rutz, an evolutionary ecologist at the University of St. Andrews and Harvard University. “And we acknowledge that in the article. But it’s one which we as a scientific community really can’t afford to miss. It’s an opportunity to find more about how humans and wildlife interact on this planet.”

Historically, this has been difficult to study. Researchers might have been able to compare how species behave in a protected area versus a neighboring unprotected area, or an urban versus a rural environment. “The problem with all of these approaches is that they usually refer to just a handful of sites,” says Rutz. “And what happened here in the anthropause is that we have this global slowing of human activity, which gives us these really valuable replicates, where we can look at the effects of human activity across geographic regions, across ecosystems, and importantly, also across species.”

Take the fishers—carnivorous mammals in the weasel family—living in North America. “They were supposed to be out in the woods far away from people, and somehow they entered cities again,” says ecologist Martin Wikelski of the Max Planck Institute of Animal Behavior and University of Konstanz, coauthor on the anthropause paper. “This is a change in culture—it’s not a genetic change.”

6. SITALWeek #251: How a Handful of Chip Companies Came to Control the Fate of the World – NZS Capital, LLC

Photolithography is a good example. In short, when the light source used in the process had to change from a wavelength of 193nm to 13.5nm to accommodate smaller, more intricate patterns on leading-edge chips of ever-decreasing geometry, only one company even tried to do it.

Extreme ultraviolet lithography (EUV) is an almost magical process. In a vacuum, 50,000 microscopic droplets of molten tin are fired every second in a stream as one laser strikes each one so precisely that they flatten into discs before another bombards them with so much power that they become balls of plasma shining with EUV light. The machines cost almost $200 million, can be the size of a house and are contained within ultraclean environments to keep out even a single speck of dust. The scanners and lasers that power EUV lithography are so complex that a decade ago many scientists believed them to be an impossibility, and Nikon, ASML’s key competitor, viewed the technology as so complicated that it didn’t even attempt to develop an EUV tool.

Because of its unique mastery of EUV, ASML has built a de facto monopoly in manufacturing the machines that make the most advanced chips. The Dutch company expects to ship about 35 scanners this year, taking the total used by foundries around the world to around 100. TSMC and Samsung are already in high-volume manufacturing with EUV, while Intel will be using the process from 2021.

Without EUV, Moore’s Law, which states that the density of transistors on a chip will double about every two years, would likely have reached its limitations. But because of the process, TSMC is building 7nm and 5nm fabs, and is investing another $20 billion on a 3nm node foundry, while Samsung, South Korea’s biggest company, said in May 2020 it started building a 5nm facility near Seoul based on EUV as part of a $116 billion plan outlined in April 2019 to compete with TSMC in contract chipmaking.

7. The Nifty Fifty and the Old Normal – Ben Carlson

Although the Nifty Fifty stocks got crushed after being bid up so much by investors in the early-1970s, their long-term results were still pretty good. Jeremy Siegel published Revisiting The Nifty Fifty in 1998. He published the annual returns from 1972 through the summer of 1998 for these stocks along with their 1972 P/E ratios and subsequent earnings growth rates:

Many of the stocks at the top of the list showed extraordinary performance. Some of these stocks were terrible investments. But you can see over this multi-decade period, this group actually more or less kept up with the overall stock market. Despite crashing from lofty levels, over the long-term the Nifty Fifty did just fine.

What We’re Reading (Week Ending 21 June 2020)

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

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

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

Here are the articles for the week ending 21 June 2020:

1. The Age of We Need Each Other – Charles Eisenstein

It was a painful yet beautiful clarifying experience that asked me, “Why are you doing this work? Is it because you hope to become a celebrated intellectual? Or do you really care about serving the healing of the world?” The experience of failure revealed my secret hopes and motivations.

I had to admit there was some of both motivations, self and service. OK, well, a lot of both. I realized I had to let go of the first motive, or it would occlude the second. Around that time I had a vision of a spiritual being that came to me and said, “Charles, is it really your wish that the work you do fulfill its potential and exercise its right role in the evolution of all things?”

“Yes,” I said, “that is my wish.”

“OK then,” said the being. “I can make that happen, but you will have to pay a price. The price is that you will never be recognized for your role. The story you are speaking will change the world, but you will never get credit for it. You will never get wealth, fame, or prestige. Do you agree to pay that price?”

I tried to worm my way out of it, but the being was unyielding. If it was going to be either-or, how could I live with myself knowing in my heart of hearts I’d betrayed my purpose? So I consented to its offer.

2. John Collison – Growing the Internet Economy – [Invest Like the Best, EP.178] – Patrick O’Shaughnessy and John Collison

Yeah, again, just like people kind of had a hard time believing that we weren’t done with the payment systems that we had at the time. Similarly, I think people don’t really intuit this. I mean, if you look at the raw numbers, the internet economy is a very small fraction of the overall economy depending on who you believe, five, 6%, something like that, but the vast majority of internet, of the economic activity is not internet enabled. I think it’s fairly clear to all of us that that is going to flip. We’re going to end up with actually a majority that’s internet enabled, but that means we’re really at a shockingly early point in that Sigmoid growth curve.

The thing that gets me excited, and one of the things that we spent a lot of time thinking about at Stripe and trying to drive is what the second order effects are of that shift, and I think people spend lots of time thinking about first order effects of technology changes and so if you were an analyst looking at the growth of computers in the fifties and sixties, you might be wondering what are the effects going to be of computers getting faster? Presumably you’d say, well, banks are going to be able to run their calculations faster and airlines are going to be able to handle even more routes in the route calculation computers.

You’d look as what computers were already used for and just kind of project that forward more and faster. You would never forecast video games. I mean, to someone in the fifties, it would seem absurd, the notion that you could have so much excess computing power and it’s so cheap that we’re just going to use this for this wildly wasteful rendering of triangles. I don’t know if you saw the Unreal Five demo, but imagine showing that to somebody in the 1950s. It really, I think their brain might have exploded, or similarly with smartphones…

… I mean, I still find technology some of the most interesting, one of the most interesting places to look, because what I find so exciting about technology is from a business point of view, it’s positive-sum, right? So many other businesses are essentially, I mean, they learn not to talk about them this way, but there’s all these like business euphemisms for the fact that, there’s a fixed amount of supply in this industry and we’re getting really good price discipline. That’s one of these like investor-y euphemisms and for not competing too much on price or revenue optimization and things like that, as you look at something like real estate, in many kinds of parts of the world, barriers to building mean that part of what makes it a good business is the fact that there’s a fixed number of assets that can be monetized.

3. We Can Protect the Economy From Pandemics. Why Didn’t We? – Evan Ratliff

Kraut, however, had an even more ambitious idea in mind. What if, instead of simply hedging its own life insurance business in the case of a pandemic, Munich Re could use the same concept to insure other businesses against them? Business interruption insurance, the policies that protect companies against income losses from disasters like fires or hurricanes, often explicitly excluded disease. (And when it didn’t, insurers could still use the ambiguity to deny claims.) The risk was thought to be too large, too unpredictable to quantify. But Munich Re had already proven it could cover its own life insurance risk in pandemics, and now it had a partner in Metabiota that specialized in seemingly unpredictable outbreaks. What if they could create and sell a business interruption insurance policy that covered epidemics, starting with acutely vulnerable industries like travel and hospitality? They could then pass on the payout risk from those policies to the same types of investors who had bought their life risk. “There is a bit of financial alchemy to the whole thing,” Wolfe told me later. “You really are creating something from nothing.”

At the same time, Wolfe had been working to operate Metabiota more like a technology company. In 2015, he hired Nita Madhav, an epidemiologist who’d spent 10 years modeling catastrophes at a company called AIR Worldwide, one of a handful of firms the insurance industry relies on to compute extreme risks. (Munich Re, in fact, had worked with AIR epidemiological models in its life insurance calculations.) Madhav’s mandate at Metabiota was to build the industry’s most comprehensive pandemic model. Her team, which eventually grew to include data scientists, epidemiologists, programmers, actuaries, and social scientists, began by painstakingly gathering historical data on thousands of major disease outbreaks dating back to the 1918 flu. Her colleagues had recently created what they called the Epidemic Preparedness Index, an assessment of 188 countries’ capacity to respond to outbreaks. Together, the two efforts informed an infectious disease model and software platform. A user could begin with a set of parameters around a hypothetical virus—its geographic origin point, how easily it was transmitted, its virulence—and then run scenarios exploring how the disease spread around the world. The goal was a model that could, for example, help a manufacturer understand how a disease might impact its supply chain or a drug company plan for how a treatment would need to be distributed.

4. The Observer Effect: Marc Andreessen– Sriram Krishan

Well, I will pick three! It’s kind of the holy trinity of our modern dilemma. It’s health care, it’s education and it’s housing. It’s the big three. So basically, what’s happened is the industries in which we build like crazy, they have crashing prices. And so we build TVs like crazy, we build cars like crazy, we make food like crazy. The price on all that stuff has really fallen dramatically over the last 20 years which is an incredibly good thing for ordinary people. Falling prices are really, really good for people because you can buy more for every dollar.

There are two ways here: you get paid more or everything you buy is cheaper. And people always really underestimate, I think, the benefits of everything getting cheaper. And so the stuff that we actually build is getting cheaper all the time. And that’s fantastic. The stuff we *don’t* build, and very specifically, we don’t have housing, we’re not building schools, and we’re not building anything close to the health care system that we should have – for those things the prices just are skyrocketing. That’s where you get this zero sum politics.I think people have a very keen level of awareness. They can’t put it into formal economic terms but they have a keen awareness of the markers of a modern western lifestyle. It’s things like – I want to be able to own a house, I want to live in a nice neighborhood and I want to be able to send my kids to a really good school and I want to have really good health care.

And those are the three things where the price levels are increasingly out of reach. However we built those systems in the past, it’s failing us. And so we need to rethink. Quite literally, it’s like, okay, where are the schools? Where are the hospitals? Where are the houses?

5. The Resilience Of Markets – Jamie Catherwood

Wall Street and American markets have endured the tests of many challenging episodes in history. The Buttonwood Agreement was signed in 1792, and since then the United States of America has experienced its fair share of wars, recessions, political upheaval, Presidential assassinations, natural disasters, disease, terrorist attacks, and more. Despite all these adversities, however, the institution of Wall Street and US markets have held firm as a bastion of American finance. Take a moment to really consider this feat, as it’s truly remarkable. Much has changed in the centuries since the Buttonwood Agreement was signed by 24 stockbrokers outside of 68 Wall Street on May 17th, 1792. Yet, much has stayed the same. If you read any archival document from the years between 1792 and 2020, it is quickly evident that investors have always found reasons to fear the continued function of American markets due to some new policy or action by an institution.

However, New York is still considered the global capital of financial markets, and Wall Street continues to be revered by investors worldwide. So, this week’s Sunday Reads will focus on the first decades of financial markets in the United States, and the groundwork that our predecessors laid for investors today.

6. Five Tips for Recovering From Covid-19 Panic Selling – Barry Ritholtz

No. 1. Recognize what happened: What motivated you to sell? Was it something you heard on the news? An emotional impulse? Did you give any thought to how selling fit in your broader investment strategy? Or was it merely an itch that had to be scratched?

Figuring out what goes into your own decision-making is the key to reducing mistakes. Analyze your process: Determine what factors should have an impact when making buy and sell decisions. Then, face up to what actually drives those decisions. If there is a mismatch between those two, recognize it and make adjustments.

If you don’t know how you got lost, what is to stop you from getting lost the next time this happens? Remember, there always is a next time.

7. Same As It Ever Was – Morgan Housel

The nuclear bomb was developed to end World War II. Within a decade, America and the Soviets had bombs capable of ending the world – all of it.

But there was a weird silver lining to how deadly these bombs were: countries were unlikely to use them in battle because they raised the stakes so high. Wipe out an enemy’s capital city and they’ll do the same to you 60 seconds later – so why bother? John F. Kennedy said neither country wanted “a war that would leave not one Rome intact but two Carthages destroyed.”

By 1960 we got around this predicament by going the other way. We built smaller, less deadly nuclear bombs. One, called Davy Crocket, was 650 times less powerful than the bomb dropped on Hiroshima, and could be fired by one person like a bazooka. We built nuclear landmines that could fit in a backpack, with a warhead the size of a shoebox.

These tiny nukes felt more responsible, less risky. We could use them without ending the world.

But they backfired.

Small nuclear bombs were more likely to actually be used in combat. That was their whole purpose. They lowered the bar of justified use.

It changed the game, all for the worse.

What We’re Reading (Week Ending 14 June 2020)

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

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

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

Here are the articles for the week ending 14 June 2020:

1. ‘Superforecasters’ Are Making Eerily Accurate Predictions About COVID-19. Our Leaders Could Learn From Their Approach – Tara Law

But in his spare time, Roth moonlights as a “superforecaster”— a member of a team of ordinary people who make surprisingly accurate predictions for the forecasting firm Good Judgment, Inc. In recent months, businesses, governments and other institutions have worked with superforecasters like Roth to help them understand how the COVID-19 outbreak might unfold.

That a group of semi-professional forecasters would somehow have accurate insight into anything as complex and important as the coronavirus pandemic sounds like the stuff of science fiction, or even ancient history—like the seers of old who told fortunes to kings and nobles. But the team behind Good Judgment, Inc. and the organization it spun off from (the research initiative Good Judgment Project) say they have established a rigorous system for identifying talented forecasters and sharpening their abilities…

… It’s unlikely that superforecasters like Roth could ever fully replace subject-matter experts. Michael Jackson, an associate scientific investigator at Kaiser Permanente Washington Health Research Institute, cautions that superforecasters are a “black box,” meaning their less-than-scientific methods make it impossible to vet their work in the same way that a scientist’s output would undergo peer review. And Philip Tetlock, a professor at the University of Pennsylvania and a co-founder of Good Judgment, acknowledges that there are times in which expertise is crucial (for example, he notes that some public health experts warned about the possibility of a coronavirus pandemic early in the outbreak.)

However, Tetlock argues that superforecasters have skills that experts may not: for example, they may also be more flexible than traditional scientists, because they’re not bound to a particular discipline or approach. Their predictions incorporate research and hard data, but also news reports and gut feelings. That way of working may increase their overall accuracy, says Tetlock…

… Superforecasters aren’t just smart, Tetlock says; they also tend to be actively open-minded and curious. They’re in “perpetual beta” mode, as he puts it in his book on the topic, Superforecasting: The Art and Science of Prediction— always striving to update their beliefs and improve themselves.

2. 6 Stoic Rituals That Will Make You Happy – Daily Stoic

The Stoics are saying there are no good or bad events, there’s only perception. Shakespeare encapsulated it well when he said, “Nothing either good nor bad but thinking makes it so.” Shakespeare and the Stoics are saying that the world around us is indifferent, it is objective. The Stoics are saying, “This happened to me,” is not the same as, “This happened to me and that’s bad.” They’re saying if you stop at the first part, you will be much more resilient and much more able to make some good out of anything that happens…

… Don’t set your mind on things you don’t possess as if they were yours, but count the blessings you actually possess and think how much you would desire them if they weren’t already yours.

3. Left-Handed DNA Has a Biological Role Within a Dynamic Genetic Code – Rachel Brazil

The DNA molecule was composed of the traditional sugar backbones and nucleotide pairs, but rather than the well-known right-handed spiral of the double helix structure, famously discovered by Watson and Crick in 1953, Wells’s polymer spiraled in the opposite direction, giving it a zigzag appearance.

Whether this bizarre form of DNA existed in cells and had any function, and what that might be, was hotly debated for nearly half a century. But research has recently confirmed its biological relevance. So-called Z-DNA is now thought to play roles in cancer and autoimmune diseases, and last year scientists confirmed its link to three inherited neurological disorders. Today, molecular biologists are beginning to understand that certain stretches of DNA can flip from the right- to the left-handed conformation as part of a dynamic code that controls how some RNA transcripts are edited. The hunt is now on to discover drugs that could target Z-DNA and the proteins that bind to it, in order to manipulate the expression of local genes.

4. The Story Behind Shundrawn Thomas’s Open Letter to Asset Management – Dawn Kissi

In “Breaking the Silence,” an open letter that has generated both internal and external praise since it was published on June 1, the Chicago-based African-American president of a firm with more than $900 billion under management wrote of a decades-old encounter with police in a Chicago suburb.

“It was profiling, pure and simple,” he wrote of the incident in which an officer unholstered his firearm after pulling him over for no other reason than Thomas being a black man in a white neighborhood. Unfortunately, this wasn’t an isolated incident; he has suffered numerous similar indignities throughout his life. In the wake of the recent killings across the United States of three African-Americans in separate incidents that have generated worldwide protests demanding an end to racial inequities, Thomas was moved to do what many feel needed to be done: “break the silence as it pertains to issues of prejudice and discrimination” and give voice to the pain.

5. 294: Cullen Roche Explains The Ultimate Breakdown Of The Federal Reserve – The Pomp Podcast

Ser Jing here: The link above brings you to a podcast hosted by Anthony Pompliano featuring investor Cullen Roche. Roche writes an excellent blog called Pragmatic Capitalism that offers his thoughts on how the modern monetary system works. In the podcast, Roche talks about his views on how the Federal Reserve actually works, and he shares his thoughts on why a lot of common beliefs about the US’s central bank (such as “money printing” will cause hyperinflation, and the Fed has manipulated interest rates to unsustainable lows) are wrong. Some of Roche’s commentary fly over my head because I don’t have a good grasp on the monetary system or the inner-workings of the Federal Reserve. But I still find Roche’s views important to note to gain a broader perspective on money.

6. The 6 Traits That Make a Rule Breaker – David Gardner

My what is I like to find the most innovative companies of our time and I like to make sure they’re not just R&D firms, or they’re not just a hope and a dream. They’re actually real-world companies delivering outstanding solutions, often disrupting the industries in which they are participating; but they’re real innovators and they could be potentially big-time innovators. Like maybe one day they’d grow up and be Amazon.com.

Those are my whats. I’ve always loved those companies. I think you and I should spend almost all of our time, if we’re trying to beat the market and we care enough to select stocks, I think we should be spending a lot of our time, anyway, looking at those kinds of companies. That’s my what.

My how is that I tend to buy and not really to sell.

I try to get in before the vast majority of others and out well after the vast majority of others. That’s a quote that I’ve sometimes used in the past — one of my maybe legacy lines one day that I’m hoping to just convey — how we do the “how of Rule Breaker Investing.” In before the vast majority of others. Out well after the vast majority of others and it’s that second part that’s so key. That’s kind of our how.

And what I said in that meeting 10 years ago was, “I think that’s why this approach works, because a lot of people who might go for innovators think that those are really high-priced stocks, or they’re momentum stocks, or you need to figure out when to sell those because they’re going to collapse, probably, at some point. I mean, you need to act in a volatile manner around volatile innovators.”

But we, instead, on this podcast and in my services Motley Fool Stock Advisor and Motley Fool Rule Breakers, I’ve got a scorecard almost two decades long, now, of stocks where we basically bought them and then kept holding. We did the opposite of how people think they should approach innovators.

And I think, because that puts us in a small corner of the big room of the investment world, there are not many others that have painted themselves into that little corner where we are. We’re kind of lonely, there, and that’s great news for you and me because most of the rest of the world will not adopt this investment approach and so that’s our what and that’s our how and when you put those two things together you have, I hope, a market-beating strategy you can use the rest of your life.

7. Watch This Black Hole Blow Bubbles – Dennis Overbye

In another example of casual cosmic malevolence, astronomers published a movie last month of what they said was a black hole shooting blobs of electrified gas and energy into space at almost the speed of light.

From a distance — quite a distance, of some 10,000 light-years — the black hole looked like a cosmic pop gun, propelling puffs of light across the sky. Up close … well you wouldn’t want to be up close, as clouds of sterilizing radiation a trillion miles wide swept by…

… “Consequences can be indirect,” she said. “A huge increase in cosmic rays during the Pliocene might have been indirectly responsible for the extinction of some ocean animals — not due to irradiation but due to damage to the ozone layer they created. So maybe crossing the path of a jet could indeed create a massive extinction, though we are a bit speculating here.”

As the bubbles traveled outward, they lit up the thin interstellar gas with a traveling light show.

What We’re Reading (Week Ending 7 June 2020)

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

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

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

Here are the articles for the week ending 7 June 2020:

1. Complexity Bias: Why We Prefer Complicated to Simple – Farnam Street

Meanwhile, we may also see complexity where only chaos exists. This tendency manifests in many forms, such as conspiracy theories, superstition, folklore, and logical fallacies. The distinction between complexity and chaos is not a semantic one. When we imagine that something chaotic is in fact complex, we are seeing it as having an order and more predictability than is warranted. In fact, there is no real order, and prediction is incredibly difficult at best.

Complexity bias is interesting because the majority of cognitive biases occur in order to save mental energy. For example, confirmation bias enables us to avoid the effort associated with updating our beliefs. We stick to our existing opinions and ignore information that contradicts them. Availability bias is a means of avoiding the effort of considering everything we know about a topic. It may seem like the opposite is true, but complexity bias is, in fact, another cognitive shortcut. By opting for impenetrable solutions, we sidestep the need to understand. Of the fight-or-flight responses, complexity bias is the flight response. It is a means of turning away from a problem or concept and labeling it as too confusing. If you think something is harder than it is, you surrender your responsibility to understand it.

2. Ben Thompson – Platforms, Ecosystems, and Aggregators – [Invest Like the Best, EP.176] – Patrick O’Shaughnessy & Ben Thompson

Why? Because the content they seek out is evergreen. It’s always available. I can go watch Orange is the New Black, one of the original shows and it’s valuable to me today. So the marginal value of Netflix is increasing as their customer base increases as opposed to a lot of services where the more customers there are, it degrades in quality and becomes even harder to acquire them and then they have to spend marketing costs to acquire them.

And that’s just where companies fall apart. So many companies based their sort of projections and calculations on the cost of acquiring a customer at the beginning. The problem is at the beginning you’re serving your ideal customer, the one that really wants your product, and so they’re going to look over the problems with your product, et cetera, et cetera. They’re going to be easy to acquire and usually your marginal customer gets more and more difficult to acquire. You have to spend more money, and what happens is Facebook and Google actually end up taking all your profit over time.

3. An Unlikely Hero for 1906, 1929…and Today – Jason Zweig

“I might never have gone into the banking business,” he later recalled, if he hadn’t gotten into a shouting match with the head of a local bank about its reluctance to make small loans to individual borrowers. In 1904, Giannini founded a bank of his own in San Francisco, called Bank of Italy, to do just that.

Then, on April 18, 1906, an earthquake struck the Bay Area, killing more than 3,000 people and setting the city ablaze.

Realizing the fires were heading toward his bank, Giannini heaved $80,000 of gold and cash into two horse-drawn produce wagons. He buried the money under crates of oranges to hide it from looters rampaging through the streets. For weeks afterward, he recalled later, the bank’s money smelled like oranges.

By the next day, the Bank of Italy had burned to the ground. But Giannini rode in from his home in San Mateo, where he had stashed the money. With San Francisco still smoldering, he set up a desk on the wharf and plunked a sack of gold on it, under a cardboard sign on a stick that read BANK OF ITALY: OPEN FOR BUSINESS.

Giannini lent to almost everyone with a legitimate need, on one condition: They had to raise half of what they needed elsewhere. That forced them to enlist their friends and family in the recovery of their business or the rebuilding of their home.

Then Giannini would lend the other half, often accepting little more than people’s character as their collateral. After all, he’d just gotten others to assume half the bank’s risk. What’s more, much of the hoarded cash the borrowers raised from their friends and family ended up as Bank of Italy deposits—or was invested in shares of its stock.

4. Permanent Assumptions – Morgan Housel

Some things are always changing and can’t be known. There can also be a handful of things you have unshakable faith in – your permanent assumptions.

Realizing it’s not inconsistent to have no view about the future path of some things but unwavering views about the path of others is how you stay humble without giving up. And the good news when the world is a dark cloud of uncertainty is that those permanent assumptions tend to be what matter most over time.

5. The Day Coronavirus Nearly Broke the Financial Markets – Justin Baer

Mr. Rao, who was working remotely that Monday, walked down the 20 steps to his home office at 4:30 a.m. to discover the debt markets were already in disarray. He started calling the senior Wall Street executives he knew at many of the big banks.

Executives told him that Sunday’s emergency Fed rate cut had swung a swath of interest-rate swap contracts in banks’ favor. Companies had locked in superlow interest rates on future debt sales over the past year. But when rates fell even further, the companies suddenly owed additional collateral.

On that Monday, banks had to account for all that new collateral as assets on their books.

So when Mr. Rao called senior executives for an explanation on why they wouldn’t trade, they had the same refrain: There was no room to buy bonds and other assets and still remain in compliance with tougher guidelines imposed by regulators after the previous financial crisis. In other words, capital rules intended to make the financial system safer were, at least in this instance, draining liquidity from the markets.

One senior bank executive leveled with him: “We can’t bid on anything that adds to the balance sheet right now.”

At the same time, the surge in stock-market volatility, along with falling prices on mortgage bonds, had forced margin calls on many investment funds. The additional collateral they owed banks was also booked as assets, adding billions more.

The slump in mortgage bonds was so vast it crushed a group of investors that had borrowed from banks to juice their returns: real-estate investment funds.

The Fed’s bond-buying program, unveiled that Sunday, had earmarked some $200 billion for mortgage-bond purchases. But by Monday bond managers discovered the Fed purchases, while well-intentioned, weren’t nearly enough.

“On that first day, the Fed got completely run over by the market,” said Dan Ivascyn, who manages one of the world’s biggest bond funds and serves as investment chief at Pacific Investment Management Co. “That’s where REITs and other leveraged-mortgage products started getting into serious trouble.”

6. How Pandemics End – Gina Kolata

When will the Covid-19 pandemic end? And how?

According to historians, pandemics typically have two types of endings: the medical, which occurs when the incidence and death rates plummet, and the social, when the epidemic of fear about the disease wanes.

“When people ask, ‘When will this end?,’ they are asking about the social ending,” said Dr. Jeremy Greene, a historian of medicine at Johns Hopkins.

In other words, an end can occur not because a disease has been vanquished but because people grow tired of panic mode and learn to live with a disease. Allan Brandt, a Harvard historian, said something similar was happening with Covid-19: “As we have seen in the debate about opening the economy, many questions about the so-called end are determined not by medical and public health data but by sociopolitical processes.”

Endings “are very, very messy,” said Dora Vargha, a historian at the University of Exeter. “Looking back, we have a weak narrative. For whom does the epidemic end, and who gets to say?”

7. Massive Up and Down Moves in Stocks in the Same Year Are More Common Than You Think – Ben Carlson

Here are some reminders I like to consider when thinking through big moves like this:

I cannot predict the direction of the stock market over the short-term.
I cannot predict the magnitude of stock market moves.
I cannot predict when market moves are going to start or stop.
The stock market doesn’t always make sense nor does it have to.
The stock market has the ability to make everyone look foolish at times.

Things looked bleak in March. Now things look not so bad considering the S&P 500 is down just 2-3% on the year. What happens next is anyone’s guess.

I don’t know.