What We’re Reading (Week Ending 29 August 2021) - 29 Aug 2021
Reading helps us learn about the world and it is a really important aspect of investing. The legendary Charlie Munger even goes so far as to say that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading.” We (the co-founders of Compounder Fund) read widely across a range of topics, including investing, business, technology, and the world in general. We want to regularly share the best articles we’ve come across recently. Here they are (for the week ending 29 August 2021):
1. What I Learned While Eavesdropping on the Taliban – Ian Fritz
When people ask me what I did in Afghanistan, I tell them that I hung out in planes and listened to the Taliban. My job was to provide “threat warning” to allied forces, and so I spent most of my time trying to discern the Taliban’s plans. Before I started, I was cautioned that I would hear terrible things, and I most certainly did. But when you listen to people for hundreds of hours—even people who are trying to kill your friends—you hear ordinary things as well…
…In 2011, about 20 people in the world were trained to do the job I did. Technically, only two people had the exact training I had. We had been formally trained in Dari and Pashto, the two main languages spoken in Afghanistan, and then assigned to receive specialized training to become linguists aboard Air Force Special Operations Command aircraft. AFSOC had about a dozen types of aircraft, but I flew solely on gunships. These aircraft differ in their specifics, but they are all cargo planes that have been outfitted with various levels of weaponry that range in destructive capability. Some could damage a car at most; others could destroy a building. In Afghanistan, we used these weapons against people, and my job was to help decide which people. This is the non-euphemistic definition of providing threat warning.
I flew 99 combat missions for a total of 600 hours. Maybe 20 of those missions and 50 of those hours involved actual firefights. Probably another 100 hours featured bad guys discussing their nefarious plans, or what we called “usable intelligence.” But the rest of the time, they were just talking, and I was just eavesdropping.
Besides making jokes about jihad, they talked about many of the same things you and your neighbors talk about: lunch plans, neighborhood gossip, shitty road conditions, how the weather isn’t conforming to your exact desires. There was infighting, name-calling, generalized whining. They daydreamed about the future, made plans for when the Americans would leave, and reveled in the idea of retaking their country…
…All this bullshitting flowed naturally into the Taliban’s other great verbal talent, the pep talk. No sales meeting, movie set, or locker room has ever seen the level of hyper-enthusiastic preparation that the Taliban demonstrated before, during, and after every battle. Maybe it was because they were well practiced, having been at war for the majority of their lives. Maybe it was because they genuinely believed in the sanctity of their mission. But the more I listened to them, the more I understood that this perpetual peacocking was something they had to do in order to keep fighting.
How else would they continue to battle an enemy that doesn’t think twice about using bombs designed for buildings against individual men? This isn’t an exaggeration. Days before my 22nd birthday, I watched fighter jets drop 500-pound bombs into the middle of a battle, turning 20 men into dust. As I took in the new landscape, full of craters instead of people, there was a lull in the noise, and I thought, Surely now we’ve killed enough of them. We hadn’t.
When two more attack helicopters arrived, I heard them yelling, “Keep shooting. They will retreat!”
As we continued our attack, they repeated, “Brothers, we are winning. This is a glorious day.”
And as I watched six Americans die, what felt like 20 Taliban rejoiced in my ears, “Waaaaallahu akbar, they’re dying!”
It didn’t matter that they were unarmored men, with 30-year-old guns, fighting against gunships, fighter jets, helicopters, and a far-better-equipped ground team. It also didn’t matter that 100 of them died that day. Through all that noise, the sounds of bombs and bullets exploding behind them, their fellow fighters being killed, the Taliban kept their spirits high, kept encouraging one another, kept insisting that not only were they winning, but that they’d get us again—even better—next time.
2. Cancer patients’ own cells used in 3D printed tumours to test treatments – Rami Ayyub, Rami Amichay and Rinat Harash
The scientists extract “a chunk” of the tumour from the brain of a patient with glioblastoma – an aggressive cancer with a very poor prognosis – and use it to print a model matching their MRI scans, said Professor Ronit Satchi-Fainaro, who led the research at Tel Aviv University.
The patient’s blood is then pumped through the printed tumour, made with a compound that mimics the brain, followed by a drug or therapeutic treatment.
While previous research has used such “bioprinting” to simulate cancer environments, the Tel Aviv University researchers say they are the first to print a “viable” tumour.
“We have about two weeks (to) test all the different therapies that we would like to evaluate (on) that specific tumour, and get back with an answer – which treatment is predicted to be the best fit,” Satchi-Fainaro said.
A treatment is deemed promising if the printed tumour shrinks or if it lowers metabolic activity against control groups.
3. Mike Maples Jr. – A Playbook for Startups – Patrick O’Shaughnessy and Mike Maples Jr.
Patrick: [00:03:09] So Mike, I’ve been really looking forward to this one since our first conversation. I like to dive right in. We’ll get to your fascinating history and all the things you’ve done, but I like to start with ideas. One of the ideas that really struck me when we talked last was this notion of forcing a choice and the power of forcing a choice in business. Can you explain in detail what you mean by this and why it’s so powerful?
Mike: [00:03:29] I like to say that there’s two fundamental fields of business that are animating the economy. There are scalable corporations, and then there are scalable startups. And a scalable startup only has one opportunity to succeed. And that is if they offer a choice in the direction towards a different future. People don’t want something incrementally better from a startup, because human beings are conditioned to like things. And if you’re too much like what they already know, there’s not room in their head to believe that you can credibly do a better job than a very large incumbent as a startup.
So what a startup needs to do is offer a choice of a different future. So if everybody in the world is selling bananas, you don’t come in and say, I have 10 times better banana, you say I’m the world’s first apple. You may not want my apple, that’s okay, but you can’t reconcile an apple and a banana. The set of people who value the advantage of apples, a hundred percent of them should flock to your apple. To me, a startup that creates a breakthrough has to force that choice because they’re trying to create a movement. They’re trying to move people to a different future of their design. People don’t move because of a comparison, they move because they see something radically different, not incrementally better.
Patrick: [00:04:43] How do you decide what might be an apple? I mean, it’s obvious when you use the fruits as examples versus like a much tastier, more ripe banana or something like that. But how do you know, you’ve done this a lot, you’ve got a million reps, when you find a team or something really early that might have that apple quality?
Mike: [00:05:00] So I’d say that there’s really two markers. At a high level, the markers are inflections, which lead to breakthrough secrets about the future. And then there’s teams that assemble in a collaborative structure that’s different from a typical corporate organization. If we take the first part, inflections, an inflection is a sea change that creates the opportunity to create a breakthrough that changes the subject of the future and changes the way we, the people, think and act. What are some examples of inflections? Lyft, a company we invested in. GPS locators got bundled in with smartphones. And so another inflection was that smartphone adoption, we believed was going to go from 10% to greater than 50%. And so you say, hmm, if you marry those inflections, you could envision a world where in the near future, lots of people would have smartphones that can find each other.
And so then you could imagine applying the ideas of Airbnb and the sharing economy to cars. To me, that’s the first step. And this is the step that a lot of people skip. I call it insight development. In insight development, you use a technique We call backcasting to identify a secret that will lead to a different future. That will be a breakthrough different future. And then after that, you iterate that insight to product market fit, using techniques like customer development and others. And then after that, you do growth hack. So there’s this breakthrough sequence. There’s the insight breakthrough, the product breakthrough, then the growth breakthrough.
And so you need a team that’s able to do that, because a secret about the future, it reminds me of the movie, Ocean’s Eleven. It’s not enough that you just know that there’s money in the Bellagio safe, you have to rob it. These breakthrough movements, you have to have the courage to be disliked. You’re making people uncomfortable. You’re getting people out of their comfort zones. You’re selling people the way you think of the world now is about to be replaced by radically different way of thinking about the world.
And so as a result, the reason I liked the metaphor of Ocean’s Eleven is you’ve got the guy that can pick the safe and you got the acrobat. You have the person that cuts the lights in Vegas. You have the person that drives the SWAT van. You have George Clooney masterminding it all. Startup teams are a lot more like that. The great startup teams are engaging in an optimistic conspiracy theory to change the future, and so they need people that are different from a traditional org chart. They need people that are going to take out the critical risks that exist between them right now, and that different future that they want to design.
4. The Semiconductor Heist Of The Century | Arm China Has Gone Completely Rogue, Operating As An Independent Company With Inhouse IP/R&D – Dylan Patel
Arm is widely regarded as the most important semiconductor IP firm. Their IP ships in billions of new chips every year from phones, cars, microcontrollers, Amazon servers, and even Intel’s latest IPU. Originally it was a British owned and headquartered company, but SoftBank acquired the firm in 2016. They proceeded to plow money into Arm Holdings to develop deep pushes into the internet of things, automotive, and server. Part of their push was also to go hard into China and become the dominant CPU supplier in all segments of the market.
As part of the emphasis on the Chinese market, SoftBank succumbed to pressure and formed a joint venture. In the new joint venture, Arm Holdings, the SoftBank subsidiary sold a 51% stake of the company to a consortium of Chinese investors for paltry $775M. This venture has the exclusive right to license Arm’s IP within China. Within 2 years, the venture went rogue. Recently, they gave a presentation to the industry about rebranding, developing their own IP, and striking their own independently operated path.
This firm is called “安谋科技”, and is not part of Arm Holdings.
Before we get to the event they held and the significance of it, let’s do a recap. In 2020, Arm and a handful of the investors agreed to oust Allen Wu, the CEO of Arm China. He was ousted for using his position as the CEO of Arm to attract investments in his own firm, Alphatecture…
…Removing Allen Wu has proven to be very difficult. Despite a 7-1 vote by the Arm China board, the company seal was still held by Allen Wu. In China, the seal is a stamp which authorizes the person in possession to bind a company and its representatives with rights and obligations. Retrieving this seal and the business license would be a multiyear drawn-out legal process. Furthermore, it would mean at least some investors besides Arm must be along for the ride. The Chinese court system would need to agree with ousting an executive in favor of one that was hand selected by western influencers.
5. What is China’s common-prosperity strategy that calls for an even distribution of wealth? – Andrew Mullen
Chinese economists were quick to move to ease fears that China’s drive for common prosperity signals aggressive policies are afoot that will seize money from the rich to close the country’s yawning wealth gap.
“Robbing the rich to give to the poor” would only result in “common poverty,” said Zhang Jun, dean of the School of Economics at Fudan University in Shanghai, in an interview with The Paper at the end of August.
“The prerequisite of common prosperity is that the pie must continue to get bigger,” he added.
Li Daokui, a former adviser to China’s central bank, also emphasised the campaign to help more people enjoy economic well-being was a long-term goal.
“It cannot be expected that progress on a variety of indicators be made in the short term, for example five years,” Li said in an interview with Phoenix Television.
“We must be vigilant against ‘common prosperity’ becoming a Great Leap Forward, a risky endeavour, or something that drags down economic development and affects efficiency.”
Li, now chief economist at the New Development Bank, said it was “harmful” to equate common prosperity with making everyone’s income equal, and emphasised the campaign should not be equated with the anti-monopoly crackdown.
6. Xi’s Dictatorship Threatens the Chinese State – George Soros
Relations between China and the U.S. are rapidly deteriorating and may lead to war. Mr. Xi has made clear that he intends to take possession of Taiwan within the next decade, and he is increasing China’s military capacity accordingly.
He also faces an important domestic hurdle in 2022, when he intends to break the established system of succession to remain president for life. He feels that he needs at least another decade to concentrate the power of the one-party state and its military in his own hands. He knows that his plan has many enemies, and he wants to make sure they won’t have the ability to resist him…
…Although I am no longer engaged in the financial markets, I used to be an active participant. I have also been actively engaged in China since 1984, when I introduced Communist Party reformers in China to their counterparts in my native Hungary. They learned a lot from each other, and I followed up by setting up foundations in both countries. That was the beginning of my career in what I call political philanthropy. My foundation in China was unique in being granted near-total independence. I closed it in 1989, after I learned it had come under the control of the Chinese government and just before the Tiananmen Square massacre. I resumed my active involvement in China in 2013 when Mr. Xi became the ruler, but this time as an outspoken opponent of what has since become a totalitarian regime.
I consider Mr. Xi the most dangerous enemy of open societies in the world. The Chinese people as a whole are among his victims, but domestic political opponents and religious and ethnic minorities suffer from his persecution much more. I find it particularly disturbing that so many Chinese people seem to find his social-credit surveillance system not only tolerable but attractive. It provides them social services free of charge and tells them how to stay out of trouble by not saying anything critical of Mr. Xi or his regime. If he could perfect the social-credit system and assure a steadily rising standard of living, his regime would become much more secure. But he is bound to run into difficulties on both counts.
To understand why, some historical background is necessary. Mr. Xi came to power in 2013, but he was the beneficiary of the bold reform agenda of his predecessor Deng Xiaoping, who had a very different concept of China’s place in the world. Deng realized that the West was much more developed and China had much to learn from it. Far from being diametrically opposed to the Western-dominated global system, Deng wanted China to rise within it. His approach worked wonders. China was accepted as a member of the World Trade Organization in 2001 with the privileges that come with the status of a less-developed country. China embarked on a period of unprecedented growth. It even dealt with the global financial crisis of 2007-08 better than the developed world.
Mr. Xi failed to understand how Deng achieved his success. He took it as a given and exploited it, but he harbored an intense personal resentment against Deng. He held Deng Xiaoping responsible for not honoring his father, Xi Zhongxun, and for removing the elder Xi from the Politburo in 1962. As a result, Xi Jinping grew up in the countryside in very difficult circumstances. He didn’t receive a proper education, never went abroad, and never learned a foreign language.
Xi Jinping devoted his life to undoing Deng’s influence on the development of China. His personal animosity toward Deng has played a large part in this, but other factors are equally important. He is intensely nationalistic and he wants China to become the dominant power in the world. He is also convinced that the Chinese Communist Party needs to be a Leninist party, willing to use its political and military power to impose its will. Xi Jinping strongly felt this was necessary to ensure that the Chinese Communist Party will be strong enough to impose the sacrifices needed to achieve his goal.
Mr. Xi realized that he needs to remain the undisputed ruler to accomplish what he considers his life’s mission. He doesn’t know how the financial markets operate, but he has a clear idea of what he has to do in 2022 to stay in power. He intends to overstep the term limits established by Deng, which governed the succession of Mr. Xi’s two predecessors, Hu Jintao and Jiang Zemin. Because many of the political class and business elite are liable to oppose Mr. Xi, he must prevent them from uniting against him. Thus, his first task is to bring to heel anyone who is rich enough to exercise independent power.
That process has been unfolding in the past year and reached a crescendo in recent weeks. It started with the sudden cancellation of a new issue by Alibaba’s Ant Group in November 2020 and the temporary disappearance of its former executive chairman, Jack Ma. Then came the disciplinary measures taken against Didi Chuxing after it floated an issue in New York in June 2021. It culminated with the banishment of three U.S.-financed tutoring companies, which had a much greater effect on international markets than Mr. Xi expected. Chinese financial authorities have tried to reassure markets but with little success.
Mr. Xi is engaged in a systematic campaign to remove or neutralize people who have amassed a fortune. His latest victim is Sun Dawu, a billionaire pig farmer. Mr. Sun has been sentenced to 18 years in prison and persuaded to “donate” the bulk of his wealth to charity.
7. Quantum Computing Startups Draw Record Investment – Sarah Krouse
Capital invested in global companies focused on quantum computing and technology—including initial public offerings, mergers and acquisitions, venture capital and private-equity fundraising—has reached $2.5 billion so far this year, according to financial data firm PitchBook. That’s up from $1.5 billion in all of 2020…
…While traditional computers use bits that store data as zeros or ones, quantum computing relies on quantum bits, or qubits, which can be a zero, a one or a combination of both at the same time. That increases the complexity of the computations quantum computers can handle. But qubits are extremely fragile and their surrounding environment can easily disrupt how they work, which makes them prone to errors.
Today’s quantum computers “are not yet at a scale that’s useful to solve problems,” said John Morton, founder and chief technology officer of Quantum Motion, said Tuesday at an industry webinar. Quantum Motion, run by academics from University College London and Oxford, focuses on using qubits based on the silicon in chips that currently power smartphones and laptops.
The startups drawing investment include those building quantum computers that rely on a range of materials and methodologies to help computers scale and become more accurate, as well as firms focused on components of quantum computers and quantum algorithms.
They include Atom Computing, which raised $15 million in July and is building scalable quantum computers out of atoms, and Palo Alto, Calif.–based PsiQuantum, which is working to build a commercially viable large-scale, error-corrected quantum computer.
Also among them is Quantum Generative Materials, a company seeking to use quantum computing technology to develop new materials for batteries and mining. It is partially owned by Comstock Mining, which in June said it was investing $15 million in an initial seed round.
The path to commercialization for quantum computing–focused companies is generally long, and many operate at a loss, betting that their research and development breakthroughs will deliver big payoffs longer term.
IonQ, a company developing quantum computers that announced plans earlier this year to go public via a special purpose acquisition company, revealed in regulatory filings that it has “incurred significant operating losses since inception” and expects to continue losing money for the foreseeable future. It lost $15.4 million in 2020 and said it is in the early stages of generating revenue from a quantum computer it makes available through cloud services like AWS, Google Cloud and Microsoft Azure. After the deal, which is expected to close later this year, IonQ “will be well capitalized, with the ability to fully fund its growth strategy and deliver on its business model—creating long-term value for shareholders,” a spokesperson said.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. Of all the companies mentioned, we currently have a vested interest in Alphabet (parent of Google Cloud), Amazon (parent of AWS), Microsoft (parent of Microsoft Azure). Holdings are subject to change at any time.
