We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.
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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 19 September 2021:
1. Zhang Yiming’s Last Speech – Kevin Xu
Last year was a very special year, with various emergencies, including the novel coronavirus pandemic. The resulting chain reaction was very volatile, and I believe we all felt it. Many people like to say that “quiet years are good years” (岁月静好), but in my opinion, the world is dynamically changing at an accelerated pace. We can see a lot of news every day, and it is very noisy.
Therefore, I would like to talk about the topic of “ordinary mind” today. In the face of a dynamically changing world, we are often anxious, worried about the future or upset about the past, and a lot of energy and time are wasted on facing volatilities. In the past, there were more discussions on methodology in the industry, and we all attached great importance to it. But I think that in such an environment, keeping an ordinary mind is something that sounds simple but important.
I think people who keep an ordinary mind are more relaxed, have no internal distortions, observe things with a more nuanced perspective, are practical, and have more patience. They tend to get things done better. Most of the time, people are able to have good judgment without paranoia or distractions. There is a saying, “本自具足”, which means “it has always been complete and sufficient, and lacked nothing”. The theme of our anniversary this year is “Remain Grounded, Keep Aiming Higher”. My understanding is that these two sentences are similar in meaning. Only when the mind is smoother and more stable, can it be more firmly rooted, and only then can it have the courage and imagination to do things that are more difficult to reach…
…The word “ordinary mind” is a word of Buddhist origin, and there are many such words in Chinese, such as “精进” (dedicating oneself to refinement or progress) and “想入非非” (daydreaming). The definition of “ordinary mind” in the encyclopedia is: “to remain unbiased and not paranoid under all circumstances and in all actions”. In modern psychology, there are also some explanations that basically mean, “doing one’s best, going with the flow, and staying calm”. If you search the headlines, you can also find other articles, concepts and explanations, such as let it be or let it go, common sense, intuition, and righteousness and sincerity. For example, the saying “不离日用常行内，直到先天未画时” (the supreme principle is buried in one’s mind) is actually about intuition (or intuitive conscience). In the Internet tech circle, there is also the popular saying, “return to the basics, seek truth through facts” and acceptance of uncertainty.
If you use the most straightforward words, an “ordinary mind” is: “when hungry, eat; when tired, sleep.”…
…The first thing I would like to say about the ordinary mind is, treat yourself with an “ordinary mind “. The most basic thing is to realize that everyone, including yourself, is an ordinary person.
Some media want to add drama when they report on startups and people’s stories, either by making the experience seem legendary or by dramatizing people’s characters. When I used to be interviewed, people also wanted me to share twists and turns. I often said it was nothing special. In fact, most things, in my opinion, have reasons and justifications. Nothing is particularly that difficult or unusual to explain.
It’s really true. As our business has grown, I have gotten to know more and more people, including many very special and capable people. One of my own feelings is: maybe there are some differences in knowledge and experience, but from a “human” point of view, we are still very similar to one another — we are all ordinary people. But there is one thing that is different. For people who achieve great things, they often maintain a very ordinary mentality. In other words, if you keep an ordinary mind, accept yourself as you are, and do well for yourself, you can often do things well.
Ordinary people can do extraordinary things…
…Two years ago, I heard about a best-selling book called “The Power of Now” on Open Language. The book has this passage:
All negativity is caused by an accumulation of psychological time and denial of the present moment. Unease, anxiety, tension, stress, worry, all forms of fear are caused by thinking about the future. Guilt, regret, resentment, grievances, sadness, bitterness, all forms of non-forgiveness are caused by worrying about the past…
…Two years ago, there was a documentary that was very popular called “Free Solo”. I met the main character, Alex Honnold, when I was in California. Many people shared his story, but the thing that struck me the most was that it was dangerous to go forward and backward, but it was most dangerous to have a weak leg and a confused heart. In the process of rock climbing, you can’t look back too much and be afraid of what’s behind you, or keep thinking about a wrong step taken. Nor can you look forward and realize that there is still such a long way to go. One thing is very worth learning from Alex: he was very focused on the present moment at every moment.
Free soloing is an activity with such high uncertainty that few people will ever have that experience. I myself had one of a much more ordinary, but similar feelings. I used to have a hard time sticking to running or swimming. Running for two kilometers was very difficult for me. Then I was thinking, what is it that makes me unable to run? It was actually the aversion to running, that fatigue or worry, that made me nervous. Later, I tried to run without thinking about anything else, except for the necessary adjustment of breathing. I tried to use only the necessary muscles, relax as much as possible, and ignore the interference of soreness. Then it became easy to run 3 km, 4 km. Later I used this same method to practice swimming. Originally, I could only swim 500 meters, but now I can easily swim up to 1,000 meters, not because my physical ability has improved, but because, I feel, I have removed the attrition in the middle. I stopped worrying about whether I could finish the swim, whether I was well-rested yesterday, or whether I was in good shape today, and was able to run better.
2. If Your CEO Talks Like Kant, Think Twice Before Investing – John Authers
We’re used to crunching numbers in investments. With the improvement in technology to analyze language, Big Data now allows us to start crunching words as well, and it turns out to be very useful. If you want to get someone to invest, make your case in clear language. And for those thinking of investing, if someone pitching to you can’t explain their offer in plain speech, that is a sign not to invest.
This is the fascinating finding from research by the quants at Nomura Holdings Inc., looking at earnings calls. (The language in 10-Ks is always carefully vetted and written by committee. Such documents tend to be written in bad, complicated prose. But when executives are speaking on a call, they have the liberty to make straightforward points in a simple way.)
The results are dramatic. The researchers analyzed the language used by execs in calls for all the companies in the Russell 1000 large-cap index, and split them into 10 groups of 100. Since 2014, the 100 companies whose officers used the most complex language averaged a return of 9.45% per year. The companies in the simplest language decile returned 15.4% per year. The results are robust when controlled for volatility, with the simple language decile having a far higher Sharpe ratio…
3. Only The Rich Are Poisoned: The Preference of Others – Nassim Nicholas Taleb
When people get rich, they shed their skin-in-the game driven experiential mechanism. They lose control of their preferences, substituting constructed preferences to their own, complicating their lives unnecessarily, triggering their own misery. And these are of course the preferences of those who want to sell them something. This is a skin-in-the-game problem as the choices of the rich are dictated by others who have something to gain, and no side effects, from the sale. And given that they are rich, and their exploiters not often so, nobody would shout victim.
I once had dinner in a Michelin-starred restaurant with a fellow who insisted on eating there instead of my selection of a casual Greek taverna with a friendly owner operator, his second cousin as a manager and his third cousin once removed as a receptionist. The other customers seemed, as we say in Mediterranean languages, to have a cork plugged in their behind obstructing proper ventilation, causing the vapors to build on the inside of the gastrointestinal walls, leading to the irritable type of decorum you only notice in the educated upper classes. I note that, in addition to the plugged corks, all men wore ties.
Dinner consisted in a succession of complicated small things, with microscopic ingredients and contrasting tastes that forced you to concentrate as if you were taking some type of exam. You were not eating, rather visiting some type of museum with an affected English major lecturing you on some artistic dimension you would have never considered on your own. There was so little that was familiar and so little that fit my taste buds: once something on the occasion tasted like something real, there was no chance to have more as we moved on to the next dish. Trudging through the dishes and listening to some b***t by the sommelier about the paired wine, I was afraid of losing concentration. I costs a lot of energy to fake that I was not bored. In fact I discovered an optimization in the wrong place: the only thing I cared about, bread, was not warm. It appears that this is not a Michelin requirement…
…Now let us generalize to progress in general. Do you want society to get wealthy, or is there something else you prefer –avoidance of poverty. Are your choices yours or those of salespeople?
Let’s return to the restaurant experience and discuss constructed preferences as compared to natural ones. If I had a choice between paying $200 for a pizza or $6.95 for the French complicated experience, I would pay $200 for the pizza, plus $9.95 for a bottle of Malbec wine. Actually I would pay to not have the Michelin experience.
This reasoning be have just shown that exists a sophistication that causes degradation, what economists call “negative utility”. This tells us something about wealth & the growth of “GDP” in society: this shows the presence an “S” curve beyond which you get incremental harm. It is detectable only if you get rid of constructed preferences.
Now many societies have been getting wealthier and wealthier, many beyond the positive part of the “S” curve. And I am certain that if pizza were priced at $200, the people with a cork plugged in their behind would be lining up for it. But it is too easy to produce so they opt for the costly, and pizza will be always cheaper than the complicated crap.
4. Scientists created the world’s whitest paint. It could eliminate the need for air conditioning. – Tribune News Service
The whitest paint in the world has been created in a lab at Purdue University in the US, a paint so white that it could eventually reduce or even eliminate the need for air conditioning, scientists say.
The paint has now made it into the Guinness World Records book as the whitest ever made.
So why did the scientists create such a paint? It turns out that breaking a world record wasn’t the goal of the researchers – curbing global warming was.
“When we started this project about seven years ago, we had saving energy and fighting climate change in mind,” said Xiulin Ruan, a professor of mechanical engineering at Purdue, in a statement…
…The paint reflects 98.1 per cent of solar radiation while also emitting infrared heat. Because the paint absorbs less heat from the sun than it emits, a surface coated with this paint is cooled below the surrounding temperature without consuming power.
Using this new paint to cover a roof area of about 1,000 square feet could result in a cooling power of 10 kilowatts.
Typical commercial white paint gets warmer rather than cooler. Paints on the market that are designed to reject heat reflect only 80 per cent to 90 per cent of sunlight and cannot make surfaces cooler than their surroundings.
5. Forget the Stock Market. The Rare-Plant Market Has Gone Bonkers. – Shan Li
The 1600s had the Dutch tulip market bubble. Now 2020 is doing the same for rare plants.
Interest in greenery has grown during the pandemic, with more people stuck at home and bored—and Instagram posts have helped send the market for unusual varieties into a tizzy. Growers, nurseries and plant shops are scrambling to keep up. The most coveted flora now fetch thousands of dollars. Plant flippers have jumped in to make a quick buck.
Jerry Garcia, a 27-year-old aircraft mechanic in San Diego, said in recent months he has been besieged by requests from people eager to buy a piece of his vast tropical-plants collection. During one week in August, he sold two small cuttings of a highly coveted Variegated Monstera Adansonii plant for $2,000 apiece. With proper care, the cuttings will eventually turn into plants.
“It’s better than the stock market,” Mr. Garcia said. “I got a bunch of these plants when they were in the double digits, and now they are in the four-digit realm.”…
…Flora with sought-after features, such as splashes of color and holes in their leaves, are often the result of genetic mutations that make them susceptible to minor changes in temperature, humidity and light, plant experts say.
The ghostly white streaks of the Variegated Monstera Albo can send prices up to $250 per leaf. Those same colorless patches, however, mean the plant has trouble photosynthesizing and often requires extra help from humidifiers or grow lights…
…Longtime plant lovers say the craze for rare plants is reminiscent of a housing bubble, or the tulip mania that gripped the Netherlands during the 1600s, when bulb prices hit stratospheric heights before crashing.
“It’s going to burst at some point,” said Ms. Barnum. “It’s too crazy.”
Botany bandits are interested, too. A few months ago, Mr. Garcia, the San Diego collector, began noticing that valuable plants were disappearing from his rented greenhouse. He set up motion-activated cameras to figure out what was happening. Those gadgets began vanishing as well.
Mr. Garcia almost did a stakeout in a hammock, but decided to splurge instead on a camera that sent live footage to his phone. It caught a man, toting a gun, making off with thousands of dollars worth of plants.
“This man was picking up plants as if he was shopping at a nursery,” said Mr. Garcia, who quickly moved his collection back home.
6. Jack Ma’s Costliest Business Lesson: China Has Only One Leader – Keith Zhai, Lingling Wei and Jing Yang
Technological disruption, once seen as a useful prod for China to catch up with the West, has been recast as a threat to the ruling Communist Party. As a result, Xi Jinping, China’s most powerful leader in decades, is rewriting the rules of business for the world’s second-largest economy.
Mr. Ma failed to keep pace with Beijing’s shifting views and lost an appreciation for the risks of falling out of step, according to people who know him. He tuned out warnings for years, they said. He behaved too much like an American entrepreneur.
Mr. Ma’s exit from the world stage followed a typically frank speech in October, when he criticized Chinese regulators for stifling financial innovation. Mr. Xi personally intervened days later to block the record $34 billion-plus initial public offering of Ant Group, Mr. Ma’s financial-tech company. Since then, Ant has been forced to restructure its business, leaving the company’s employees and investors in limbo.
Beijing has cracked down on China’s private sector, issuing fines and initiating probes meant to force Mr. Ma’s companies, as well as such firms as ride-hailing giant Didi Global Inc. and TikTok owner ByteDance Ltd., to adhere more closely to the state’s interests. The companies, holding troves of capital and user data, had grown too expansive for the government to control…
…Alibaba boomed in the late 2000s, and Mr. Ma appeared on posters and TV screens hung in convenience stores and at airport and railway waiting areas across China. Millions watched him issue his prescriptions for success. “The success or failure of a company often depends on if the founder could follow his heart,” he said in one early speech.
Government officials hailed his work. One was Mr. Xi, who by the early 2000s had become the top leader of Zhejiang province, where Alibaba is based. Mr. Xi promoted startups, in line with Chinese policy at the time.
“He encouraged companies like Alibaba to expand because they’re good for the country,” a former Zhejiang official recalled. After Mr. Xi left Zhejiang in 2007 to be Shanghai’s top official, he visited Alibaba and asked, “Can you come to Shanghai and help us develop?” state media reported…
…Backed by success, Mr. Ma grew more bold and had few people to hold him back. He touted Alipay, the online payment service he created for transactions on Alibaba’s e-commerce platforms, even though it threatened the dominance of China’s state-owned banks.
Chinese banks weren’t doing enough to support small businesses, Mr. Ma said, because they focused too much on state-owned enterprises. “If the banks don’t change, we’ll change the banks,” Mr. Ma said at a 2008 conference.
After Mr. Xi became president in 2013, the freewheeling atmosphere in the private sector that had prevailed under China’s previous leaders, Jiang Zemin and Hu Jintao, began to thin. Mr. Xi announced that “state-owned enterprises cannot be weakened, but must be strengthened.”
The shift in Beijing coincided with Mr. Ma’s global ascent—and he didn’t appear to notice the change.
7. Gabriel Leydon – Designing Digital Economies – Patrick O’Shaughnessy and Gabriel Leydon
Patrick: [00:04:10] I know you’re going to restrain yourself, but we’ll do our best. The first red pill of the discussion is around the topic of design. There’s a huge emphasis on design right now, and I think you’ve got an interesting take on what an emphasis on design means about where we are in capitalism. What are your thoughts on the importance of design or what it might mean?
Gabriel: [00:04:30] I see this push for, you see a lot of people, they’re making productivity apps and they’re claiming it’s a game now. I see things going in this pattern where when things are innovative, nobody really cares what they look like. If I made up a teleport machine and it was the size of an arena and it was covered in slime and smelled really bad or something, I don’t think anybody would care. There’d be a line around the block. Everybody would just jump in and they would think it’s the greatest thing ever. But over time we kind of would make it smaller, and then the artists would come in and try to make it look nicer and feel better. And once you kind of get to that design phase, Silicon Valley’s been in for about 10 years, there’s only so much you can do to make something look better.
If you remember 5 years ago, everybody was talking about delighting their users, and delighting was just like, “We don’t have any more ideas. So we’re just going to feel a little bit better because we’re out of ideas. So now we’re going to just delight you.” And the game design stuff is, “we don’t know how to make this look better, so now we’re just going to tap into your human condition of biology and psychology to make our products better. Because we don’t know how to make them more innovative, we don’t know how to make them better looking, but we can add levels and achievements.”
How that presents itself is all of a sudden you’re getting achievements for buying erectile dysfunction pills from Hims. You buy extra orders of minoxidil to max out your Hims account. That’s sort of what we’re seeing. And it’s funny too because that’s all I’ve been doing for 20 years, is that kind of stuff. And while I was doing it, I just thought I was wasting my time working on video games. I thought you have Google’s being built around you and Facebook and all this stuff, and here you are making video games and you just feel like the losers of technology. The losers make video games, and it’s kind of true in a lot of ways. But recently it’s kind of like everything’s turning my way. Everything’s becoming, you see this kind of talk about everything becoming a video game, and it’s pretty bizarre to me because it even caught me by surprise. 20 years feeling like you’re wasting your time, and then all of a sudden feeling like, “Hey, am I really good at the world’s most important skill all of a sudden?”
It’s very interesting, but I actually see it as a bad sign. We’re basically running out of new ideas. The economy is just becoming more and more psychological and it’s less about innovation and more about understanding your condition as a person and then building a product around biological and psychological reflexes rather than a teleport machine that can move you around the world. So I think you’re seeing more and more of that…
…Patrick: [00:48:44] Can you say a bit about the experience with RT platform? Think some of the technologies that you built.
Gabriel: [00:48:49] My personal obsession has been trying to create the most amount of human interaction as possible on an app. Everything that I’ve done online has been an app about trying to get the whole world on one screen. That’s my goal, is I want 8 billion people on the same screen at the same time. And then I want to just do crazy stuff with that. Because I think that’s the perfect manifestation of the internet. It’s like, put everybody on the same screen. We’re all connected. So, let’s all get on the same screen. So it sounds kind of crazy. But to me, it just seems like the logical outcome of the internet. Is we just all ended up on the same screen and looking at the same thing at the same time. And that’s what I want to do, is try to create a real-time layer between everybody and make all that work very, very hard.
But the other thing that I think that’s really interesting, kind of like change of topic, that you mentioned, I’m really excited about NFTs. Because I see a clear trajectory from in-app purchases to NFTs. Where we were the first game on the Apple platform to have in-app purchases in a game called Race or Die at the time. And then we made another game called Original Gangsters. That was the first one that we made for in-app purchases. It was transformative. It was insane. The idea that people can be in the app, they have their credit card hooked up, and they could just press a button, essentially. Put in their password, put their thumbprint, look at a camera and spend $1 to $100. Totally changed everything when that happened. I mean, our revenue went from selling apps. It went up about 700% overnight. As soon as we put in-app purchases in the game. So, it’s crazy.
As a video game developer, the reason why that works is because I have a centralized economy. I have servers. I have server security. I have a total monopoly on my virtual goods. If you want to buy one, you can’t buy it from anybody else. You have to buy it from me. And if you try to hack my server, you can’t. You just have to buy it. There’s no other way. We would make items, make new stuff for the game. And they would make millions of dollars in an hour. And the thing that enabled that ultimately, was all the security around the item. They had to buy it from me. And now we’re seeing NFTs. Where, instead of the game developer creating the security around the item, we have Ethereum creating security around the items.
So, literally, everybody on earth now has the same monetization abilities that a video game has. And you’re seeing the same results, like Blau doing $11 million of MP3s in a few hours. That’s what video games do. So this guaranteed scarcity, guaranteed ownership, perfect security, or near-perfect security at least, around these virtual objects are the next iteration of the in-app purchase that will invade every single software business there is. Everybody’s going to start looking like a gaming company. If you can get an audience together and you can create demand around the virtual object, you now have Ethereum as your security model and you can control whether somebody can buy it from you or not.
I see everyone, and it’s sort of this thing that you can’t avoid too because it’s all margin. It’s like a 100% profit. They’re all virtual objects. So I actually see everybody getting into this. Even your local cafe. Everybody’s going to be doing this because you can, and because it will make a lot of money. And it’s going to come down to, going right back, this is what I meant. Last year I was feeling like, oh gosh. All this video game experience. I was applying it to some friends or whatever. There were some things I’ve worked on and it worked really well on. So I felt kind of good. It’s okay. Works on other stuff. But when I saw this, I was like, oh my God. Is everybody going to be running a live ops team? And the answer is, yes. Everybody is. Everybody’s going to say, get online at noon and buy 1 of 30 of these things that unlocks access to the VIP room, the events, the whatever, whatever.
And not only that it’s superior to the in-app purchase because it’s tradable and it’s speculative. When people are buying stuff in a free to play game, the only thing they get in return is the experience. That’s it. If they stop playing the game, that’s it. They don’t get anything. They just get nothing. But they get the experience and it’s good enough. It’s good enough to be $80 billion a year. Just for the experience. So what happens when these things are tradable and speculative, and guaranteed rare. I think it 10x’s or maybe actually more. I think that people are vastly underestimating what’s about to happen. They don’t see it in their regular life. They don’t work in businesses that do this kind of stuff.
So I think it’s inevitable and it will happen slow and fast. Fast in a video game, but slow everywhere else. Because there’s not enough people that understand this stuff. There really isn’t. I mean, there are people who are okay at it. And then there are people who are really, really good at it. There’s just not enough. And there’s no school to go to either. It’s all experience-based and intuition. So the world isn’t going to turn into a video game overnight. Because there’s just not enough people to do it. But I do think it is inevitable that everybody starts selling these virtual objects because they can. They can be designed in ways that unlock crazy amounts of profits that are just, I mean, this sounds really extreme but I think that you’ll start seeing more and more businesses adopt loss-leader or free to play models. The price of coffee could go down because they make more money on the NFT. That sounds-
Patrick: [00:54:20] Crazy…
...Patrick: [01:01:04] Give me one more thing at least. One more what I would call purple pill. Something not too inflammatory. Something you think that is true about the world that people wouldn’t like to hear.
Gabriel: [01:01:14] I think we need AI more than we think. I think that we’re at an IQ limit and the reason why innovation feels like it’s slowing down is because we can’t do it. We just literally, physically can’t do it. And there may be an exit ramp through AI, but it’s not exactly clear that we can do that either.
I really think that the 60s and 70s futurism is the reason why we’re suffering so much today. Because there was no reason to not print money, to not full-on inflationary mindset and everything because we were going to live in paradise. We were going to be on the moon. We’ll be able to pay all this back, there’s no problem. And then financialization happened, and gamification of financialization happened because that was easier and it worked. But it’s not better. Innovation is better. It’s clearly better. If I make a teleport machine, I don’t need to make a video game, I don’t need to have levels and achievements. It doesn’t need to look nice. It doesn’t need any of those things. It’s just is what it is and everybody wants one. That is better. That’s the only way to really have prosperity. And this design/now gamification is a symptom of the limits of our minds. So instead of doing things in the physical world, we’re doing things in the psychological world now, and that’s may be permanent. And I hope that’s not true, but more and more of the economy is going into this exploit, automation, high-frequency trading, that kind of thinking. And it’s not rockets to Mars.
We’ve gotten to the point where we look at the two richest men… Like we used to have the Wright brothers, these two guys trying to make an airplane, they’re in the middle of nowhere, who are these guys like? Now we look to the two richest men in the world to solve our most difficult problems. The regular person has no chance in participating in the future of the economy now. The only people who have the chance like, “I hope Bill Gates figures out solar panels.” And the regular people are just kind of looking up to them saying, “Well, I don’t know what to do.” And I think the reality is the rich guys don’t know what to do either. We got the rockets going. Those are cool. And we’re making some incremental innovations. There’s been some really important things like crypto. So it’s not hopeless. It’s just not what we thought was going to happen. So I think that’s the dislocation between the economy and the reality of innovation is that the economy moved way ahead of innovation, under false expectations that we would be able to keep innovating at an exponential rate.
I think there’s a fear that we know that we can’t. So then you’re staring at deflation like a reset, essentially. We’ve got too much of everything and there’s not enough innovation to pay this back. It doesn’t exist so we got to abandoned ship basically. That’s pretty bad. But from my lens, from my point of view, it’s like that’s why gaming is becoming so important. It’s because we don’t have the teleport machine and we need one. And if we had teleport machines, nobody would be playing games.
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