What We’re Reading (Week Ending 23 January 2022) - 23 Jan 2022
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 23 January 2022):
1. Interview: Ryan Petersen, founder and CEO of Flexport – Noah Smith and Ryan Petersen
N.S.: The supply chain crunch has been the biggest economic story in the world for about a year now, causing inflation and throwing the Biden administration’s plans into disarray. What sparked the supply chain crunch? How much of a factor was increased demand for physical goods due to the pandemic? Were shifting trade patterns at all to blame? Basically, why now?
R.P.: The supply chain crunch was started by increasing demand for goods, as consumers stopped spending on services. Americans in particular had more money in their pockets because they weren’t going on trips, spending at restaurants and bars, or attending concerts. Instead as city after city started enforcing lockdowns and restrictions, people started spending a lot more goods and not services. You’ve got to get your dopamine somewhere. So what we saw was an unprecedented increase in imports from China—as much as 20% more containers entering the United States than were leaving our ports since the start of the pandemic. It turns out, our infrastructure is just not made to scale this fast, and by infrastructure what we mean is the entire ecosystem: The number of container ships in the world, the number of containers available, the throughput of our ports, the availability of trucks and truck drivers, the availability of chassis (the trailers that haul containers around), the entire system is overwhelmed and clogged. We simply don’t have enough of these essential supply chain elements, or resilient systems that are agile enough to shift the supply of these assets to where they’re needed.
While the pandemic drove this shift in demand from services to goods, it also changed where consumers were buying goods (increasingly online), the types of goods they were buying, and where those goods were flowing to and from. One thing to note is that e-commerce logistics networks are fundamentally different in their geographical and physical space than that of traditional retail. They’re more complicated because you are edge caching your inventory to be closest to your users instead of positioning everything in a distribution center in a single hub. You now have to position your warehouses all over the United States, making it exponentially more complicated. So the more people bought things online, the more these systems were overloaded.
Then there was the impact of cascading second orders that are inherently unpredictable. For example, as imports increased as much as 20%, exports actually decreased because the United States economy was slow to reopen. In fact exports are still down. If you look at the journey of a shipping container, it runs in a loop: The same container that brings in imports later helps transport exports out of the U.S. So if there are fewer exports going out, that means companies are consciously choosing to ship empty containers back to Asia or else they will run into shortages at the origin ports. At one point over the last year, as an industry, we were 500,000 shipping containers short in Asia. These shortages led to increases in prices. If you wanted to get a container you had to pay a real premium to get access. In some cases renting a container for one journey was more expensive than the price to buy one. In January 2019, rates on the Trans Pacific Eastbound route (TPEB), and Far East Westbound (FEWB) were around $3000. In December 2021, rates remained elevated in the $12,000 – $15,000 range. At one point this year, TPEB rates were as high as $24,000.
Consumers are just buying more stuff than ever and our infrastructure, frankly, isn’t ready for it. It’s getting held back by dilapidated port infrastructure, by congestion, non-automated ports, and bad rail connections to the ports. We’re just recognizing the pain of 20 years of not investing in our infrastructure. And we’re feeling all that pain in one year right now. It’s increasingly difficult for truckers to pick up or drop off containers at ports and warehouses, leading to today’s congested ports, lots, and railyards. So boats can’t get in, we don’t have enough containers, a lot of the empty containers are stuck on the chassis, we don’t have enough chassis because we don’t have enough warehouse space, and we don’t have any space in the warehouses because we can’t move the goods out fast enough.
Until we can focus on what actually clears the ports, rail yards and warehouses, and goods can begin to move at a pace that aligns more closely with the growth in consumer demand, there’s nowhere for the containers to go, and the number of ships waiting to unload will continue to grow…
...N.S.: Was the global economy simply over-engineered? Did we optimize supply chains for efficiency at the cost of resilience, like a machine with tolerance gaps that are too small? And if so, should we recalibrate going forward, to leave more slack in the system in case of future crises?
R.P.: In my opinion, what’s caused all the supply chain bottlenecks is modern finance’s obsession with Return on Equity (ROE). To show great ROE, almost every CEO stripped their company of all but the bare minimum of assets. “Just-in-time” everything with no excess capacity, no strategic reserves, no cash on the balance sheet and minimal investment in R&D. We stripped the shock absorbers out of the economy in pursuit of better short-term metrics. Large businesses are supposed to be more stable and resilient than small ones, and an economy built around giant corporations like America’s should be more resilient to shocks. However, the obsession with ROE means that no company was prepared for the inevitable hundred-year storms. Now as we’re facing a hundred-year storm of demand, our infrastructure simply can’t keep up.
Most global logistics companies have no excess capacity, there are no reserves of chassis, no extra shipping containers, no extra yard space, no extra warehouse capacity. Brands have no extra inventory and manufacturers don’t keep any extra components or raw materials on hand.
And let’s not forget the human aspect of the workforce that makes this all happen. A lot of companies in the industry haven’t invested in taking care of their people, especially during market downturns, so now they can’t staff up quickly to meet surging demand.
When the floods inevitably hit, the survivors will be those who invest in excess capacity, in strategic reserves of key capital assets, in employee trust that let them attract and retain talent. Running lean systems may seem beneficial, until the whole system fails like it did this year. We’ve removed the shock absorbers from the economy and it’s time we add them back.
2. Standard Oil Part I – Ben Gilbert and David Rosenthal
We dive into original American capitalist mega winner, Standard Oil, and its legendary founder John D. Rockefeller…
…David: Yeah. Rockefeller though just got this vision where he’s like, oh man, the more profit I make, the more capital I can put into this, the more oil I can hold, and the more I can produce. When the price crashes, I’ll just keep buying. He buys the dip over and over again. Because his operations are so much more efficient and so much more profitable, he can afford to pay more than anybody else. He can afford to hold this stuff longer. He’s really thinking long-term in a way that none of his other competitors are.
Ben: When we say he’s tweaking stuff and he’s so much more profitable, he is both horizontally and vertically integrating. Let’s talk about vertically integrating first. He’s doing things like realizing, jeez, we’re hiring a lot of plumbers to come in and lay this pipe every time we do a build-out. They do things like hire their own plumber, hire their own blacksmiths, and decide actually, we should do this ourselves. That way, we can save all this money on piping instead of buying it from a third-party contractor.
Later down the road, he even plants a forest. He buys up a forest so that they can cut down the trees themselves to build the barrels out of.
David: To make their own barrels. Oh my gosh, this is so great.
Ben: They save all this money rather than buying barrels from somebody else. Then, of course, they can innovate on the barrel-making process. He figures out, oh, if we treat the wood in the forest, then it’s lighter and cheaper to ship back to the refinery so we save all this money on transportation. That’s the vertical integration side of things, which would be crazy enough, but he’s figuring out that wait, we do this process. How can we use the whole buffalo? What can we sell the gasoline for? I think they invented Vaseline.
David: Yes. I think they buy the company that invents Vaseline. Petroleum jelly, which is one of the byproducts, they commercialize it.
Rockefeller found his calling here. This is divine passion. There’s just one problem which is the partner, Clark. Clark is not so into how much capital Rockefeller is tying up in the business here. He’s like, hey, we’re merchant traders. The point is profits, and then we keep the profits.
Rockefeller is like, no, reinvesting it in R&D, CapEx, and inventory. Rockefeller starts going around to all the banks and all the financers in Cleveland and lining up. He’s not even using just the profits from their operations. He’s getting more external financing to finance growth here.
Ben: When I say both vertically and horizontally integrating, in the horizontal sense, he is obsessed with trying to figure out how to be the sole supplier of oil to the world. As soon as he figures out that there are economies of scale here, he’s like, okay, cool. How do we start the flywheel, get as much capital as possible, build out as much production as possible, and start having agreements with whoever’s got rights to the land as possible so we can start vending to the world?
David: Yeah, and own this super strategic chokepoint of refining in cities. Clark is spooked by all this. Chernow has this amazing quote that he finds from Rockefeller. I don’t know where he found this. I should look up in the notes at the end of Titan. This is so good. Rockefeller apparently wrote or said this at some point. “Clark was an old grandmother and was scared to death because we owed money to the banks.” It’s so great.
Rockefeller engineers a coup. Some of Clark’s brothers are also partners in the business at this point in time. They get into all these arguments. John baits them one day into threatening that they should just dissolve the partnership. John’s like, okay, great, let’s dissolve the partnership.
Ben: Because he knows that if he goes to them and says, look, first of all, I don’t think you are risk-tolerant enough, and second of all, I don’t think you’re upstanding so I want out. He knows that he loses leverage by doing that. That’s why he baits them into doing their normal thing of getting all up in a fit and saying we’re going to back out.
David: Totally. Rockefeller immediately goes to the local paper and places a notice that the partnership is dissolving and that there’s going to be an auction for the assets of the partnership including the oil refineries. It sets up this showdown where the Clark brothers and Rockefeller bid against each other for each other’s 50% stake in the business.
Ben: Which is, by the way, a great way to do it. If you’ve got a partnership that’s blowing up, all right, whoever wants to pay more to buy the other person out is the person that should get to own the whole thing. The idea of a bidding war between the two of them to figure out how to value the business makes total sense.
David: Between the two principals. Rockefeller though, remember, he’s been going and getting the relationships with all the banks and financiers, he lines up financing in advance of the auction. He’s got basically unlimited resources, although the price ends up stressing him out. He buys Clark’s 50% of the oil business for $72,500. In exchange, Rockefeller gives Clark his 50% share of the produce trading.
Ben: Which by the way, he probably buys him out for $3–$4 million, something like that, in 2021 dollars.
David: A good chunk of change. That 50%, that $72,500 or however you want to think about it, is 50% of Standard Oil right there.
Rockefeller would say later, “It was the day that determined my career.” Probably bigger than job day. “I felt the bigness of it, but I was as calm as I am talking to you now.” This is what we’re going to see. This man has literally solid ice running through his veins. It’s crazy.
This was a big price. It was more than Rockefeller wanted to pay, but this happens in February of 1865. Back to what’s going on in America, two months later, General Lee surrenders to Grant, and the Civil War is over. With the Civil War over, what’s less important? Commodity, produce trading. What is all of a sudden a hell of a lot more important? Oil, industry, urbanization, everything.
Ben: Because all these soldiers are coming back and getting jobs in factories, you have an industrial boom here. It’s interesting how Rockefeller is obsessed with I’m not a speculator. I’m not one of these people rushing to prospect various plots of land in Western Pennsylvania. It’s funny that it’s, I would say, a picks-and-shovels play. I guess the point to make here is he’s doing the predictable, reliable, stable, very strategic part of the value chain. He’s not out prospecting land.
David: To just doubly underscore strategic, did Rockefeller know the war was going to end in two months? Probably. Sherman’s probably marching to the sea at this point.
Chernow writes, “The war had stimulated growth in the use of kerosene by cutting off the supply of southern turpentine, which had yielded a rival illuminant called camphene. The war had also disrupted the whaling industry, and led to a doubling of whale oil prices. Moving into the vacuum, kerosene emerged as an economic staple and was primed for a furious postwar boom. This burning fluid extended the day in cities and removed much of the lonely darkness from rural life.”
Soon, John D. Rockefeller would reign as the undisputed king of that world. He’s now got the oil operations, the refining business all to himself. December of 1865, the war’s over, all this is going on, and he opens a second refinery in Cleveland next to the Excelsior Works with a new name that he chooses, he wants to let everybody know that his oil, his kerosene, his business, and his operations are going to be bigger than anyone else. It’s going to be the best quality and it is going to reign from sea to sea. What does he call the new operation?
Ben: Standard Oil.
3. Bitcoin Failed in El Salvador. The President Says the Answer Is More Bitcoin – David Gerard
More than 91 percent of Salvadorans want dollars, not bitcoins. The official Chivo payment system was unreliable at launch in September—the kiss of death for a new system. Users joined for the $30 signup bonus, spent it or cashed it out, then didn’t use Chivo again. The system completely failed to check new users’ photos, relying solely on their national identity card number and date of birth; massive identity fraud to steal signup bonuses ensued. Bitcoin’s ridiculously volatile price was appreciated only by aspiring day traders. Large street protests against compulsory Bitcoin implementation continued through October. The government stopped promoting Chivo on radio, TV, and social media. Chivo buses and vans were seen with plastic taped over the company’s logo.
Bukele’s financial problems remain. El Salvador can’t print its own dollars, so Bukele urgently needs to fund his heavy deficit spending. The International Monetary Fund has not lent the country the $1 billion Bukele asked for, and has indicated its strong concerns about the Bitcoin scheme.
So Bukele, known for a populism that is half aspiring dictator, half Elon Musk, once more announced national policy from the stage: At the Latin American Bitcoin and Blockchain Conference on Nov. 20, Bukele came onstage to an animation of beaming down from a flying saucer and outlined his plans for Bitcoin City: a new charter city to be built from scratch, centered on bitcoin mining—and powered by a volcano.
Bitcoin City would be paid for with the issuance of $1 billion in “volcano bonds,” starting in mid-2022. The 10-year volcano bonds would pay 6.5 percent annual interest. $500 million of the bond revenue would be used to buy bitcoins. The bitcoins would be locked up for five years, then sold to recover the $500 million purchase price; any profit on the sale would be paid out as an additional dividend. Holding $100,000 in volcano bonds for five years would qualify investors for Salvadoran citizenship.
4. TIP406: Finding Hidden Treasure w/ Thomas Braziel – Trey Lockerbie and Thomas Braziel
Trey Lockerbie (35:25):
You mentioned your investors expecting you to knock the cover off the ball sometimes. There is this unbelievable example or this investment that you did that I think encapsulates a lot of what we just talked about on this episode, and that was your Mt. Gox investment. So start at the top of this example. I know you’re going to try and spin it in a very humble way, but this is just such an incredible investment. Give us the lay of the land here with this, what you saw and how it’s panning out.
Thomas Braziel (35:54):
You know, I would just say that so much of your life in business, your personal life, and in investing is going to be serendipitous in the sense that I really believe so much of it as preparation meeting opportunity. I happen to be in the right place at the right time. I happen to know a lot about bankruptcy. I happen to know how to buy claims. And I just so happen to something I thought, “Well, wow, this is ridiculously asymmetric. If this works, yeah, this could really work, and I’ll get this ridiculously magnified return on probably the most volatile and interesting asset of our time.” So Mt. Gox was interesting. I mean, I tripped upon Mt. Gox reading the FT, and I saw the administration. It was probably year into the administration and there was an article in the FT. And I had known what Bitcoin was, but I didn’t think anything of it. I mean, I’m living, as we all do, I’m living in my own bubble.
Thomas Braziel (36:50):
And that’s the hard part about investing is this time period where you need to have your ears up and your antennas out and you’re looking, scoping out, trying to find opportunities. But then when you find something that might be interesting, you have to choose and choose wisely as best you can on where you’re going to spend your time. So for this, I saw the docket, I thought, “Wow, Japanese insolvency cryptocurrency claims. Wow. That’s amazing. That is really crazy. I wonder how you buy these.” It was out of curiosity. I wonder how you actually paper buying this kind of thing. And I thought, “Wouldn’t it be cool to buy one just to see if I could do it?” It was like someone saying like, “Wouldn’t it be cool to build a cabinet, see if I could just do it?” And there’s something like that. Someone.
Thomas Braziel (37:35):
So I did. So I went out there in the market, and it’s easy to read about the case. It was all in English and in Japanese, it was in dual languages, just because there were so many foreign creditors that they do everything in English and Japanese. So this is 2016, Bitcoin was probably at $300. I remember I bought some Bitcoin on Zappo and maybe on Coinbase as well, just to be like, “Hey, if I’m going to buy these claims, I should probably know what Bitcoin really is. People talk about it.” I bought one claim and I thought, “Oh, that’s really cool.”
Trey Lockerbie (38:08):
Where did you buy the claim? How did you find someone to sell you a claim?
Thomas Braziel (38:11):
So this is true in American cases, it’s not always true in foreign cases, and it just happened to be that a list of creditors, of approved creditors was… It is available if you’re a creditor in the court, but someone had actually leaked the approved creditor list, and I remember, hopefully this was pre-GDPR, but we had gotten ahold of the list and it’s all public there. I mean, I think there was even links probably to a newspaper where they had the list posted or at least in their servers or whatnot. But there was a list of approved creditors floating around. So I started fishing around and I figured, “Okay, I’ll start with the funny names because those will be easier to Google and find somebody that matches it, because John Smith’s going to be pretty hard to find. But your last name is Lockerbie, is that how you say it?
Trey Lockerbie (38:58):
Lockerbie, yeah.
Thomas Braziel (38:59):
That’s pretty, Trey Lockerbie, I might Google Trey Lockerbie and I’d look for a guy who was maybe into computer science.,Maybe he was into crypto, if he had it as an interest on LinkedIn or on Twitter, something, and maybe he’s the right age, maybe he’s below 35 and is into computer science or is somehow into cryptography and whatnot. So I started doing that and I basically found a few claims, bought them, and I didn’t think… At the time crypto was at 300, we bought the claims for a look through price of about $100 in Bitcoin. So it was an OK trade. It was like, “That’s an okay trade.”
Thomas Braziel (39:36):
This happens a lot of times in the life cycle with trades. It’s like a company you know a lot about. I don’t know, maybe if you follow Disney really close or something and you’re like, “This is an inflection point.” The real inflection point in the trade was 2018, I think when Bitcoin went to over 20,000, but it kind of pulled back, and the trustee was sold some crypto to basically raise a fiat. And we were able to buy the claim, where we were buying the crypto for free. And let me explain how. If you added up the cash in the estate and you added up the crypto, or you just added up the cash, leave the crypto for a second, and you divided by the outstanding claims, you were going to get about 450 to 480 dollars per claim, per BTC, per Bitcoin.
Thomas Braziel (40:23):
And we were able to buy them anywhere between 300 to 400 dollars. So we always knew we were going to get the 450 to 480 back in cash. And on top of the cash was Bitcoin. And I pitched this trade all over town in New York, trying to get a hedge fund to put in capital and let’s do it. And they were… People were like, “Hey, this is not that scalable, this is crypto. We’ll never get it past…” The common objection, too small, not scalable, it’s crypto. I’ll never get it past my investment committee. Or, “Oh, I get it. You’re getting free optionality, but what is Bitcoin even worth? I mean, let’s be real.” And I was like, “Yeah, I don’t know. I think it’s a real possibility it could be worth something, and it hasn’t died yet.”
Thomas Braziel (41:06):
Even at the trade I was putting it on, assuming Bitcoin stayed where it was, it was somewhere between the 8 and 10 X return. And that was in Bitcoin, I think was at about 10 grand. So we’re getting the Bitcoin for free. So our downside extremely limited. I mean, in my mind, practically zero, other than legal risk and cost of collection and IRR risk, and optionality and convexity was incredibly high. So I loaded the boat. I mean, my hedge fund at the time, we were actually winding it down, so we didn’t add any in the hedge fund, but I was able to get a family office on board, and since my hedge fund was winding down, we were making distributions. I mean, this is crazy and I would never recommend someone do this. I put all my personal money in it.
Thomas Braziel (41:49):
So I did that knowing that it was a little aggressive and maybe I did it out of spite for my hedge fund closing, but no, not really. I really thought it was an amazing trade. I remember I actually had a… The claims that we bought in the whole setup, I remember sitting at dinner here in London, where I am now, and one of my investors was coming through. And I remember sitting at dinner with him, trying to explain to him how great this was. And his just… And he is a nice guy and he’s very smart but just can’t be bothered to look at the spreadsheet that… I’m such a young, somewhat naive person just thinking that this guy at dinner, when we’re having drinks and dinner, wants to see my spreadsheet that I printed out where I lay out the convexity and how great this is and all this stuff.
Thomas Braziel (42:36):
And he’s like, “This is great. Yeah, whatever, whatever. Great, great, great.” And he just doesn’t… He did not care. Maybe I wasn’t very good at pitching it, but anyway. So I got a family office on board. We bought a few million dollars worth. I put all my money into it. And I’m going to say the rest is history, because we’ve been buying claims over the years, but now we buy claims, of course we’re not making 40 X, we’re buying the Bitcoin for about half price and maybe 60 cents on the dollar. So we buy them for a large crypto hedge fund that believes in crypto. And I have to say, I’ve spent a lot of time in crypto now because of this, and I’m a bit of a believer.
5. Is the Fed Responsible for an 800% Gain in the Stock Market? – Ben Carlson
In a recent post I shared how the U.S. stock market is now up more than 800% since the lows of the financial crisis.
Right on schedule my Twitter replies and inbox were full of people bemoaning the fact that this entire bull market is an artifact the Federal Reserve policies…
…But what about Japan and Europe? Their central banks have also taken on trillions of dollars of assets on their balance sheets…
…The S&P 500 is outperforming stocks in each of these developed countries by more than 200% in total over the past decade. These countries have been providing similar levels of monetary stimulus over this time and their interest rates have been even lower than ours.
While the 10 year U.S. treasury bond currently yields around 1.7%, yields in Japan (0.1%) and Germany (-0.1%) are much lower. Why aren’t stocks exploding higher in those countries?
Interest rates certainly have an impact on how people allocate their capital but low interest rates alone don’t explain everything that happens in financial markets.
6. How Shein beat Amazon at its own game — and reinvented fast fashion – Louise Matsakis, Meaghan Tobin, and Wency Chen
Over the past decade, thousands of Chinese clothing manufacturers have begun selling directly to international consumers online, bypassing retailers that traditionally sourced their products from the country. Equipped with English-language social media profiles, Amazon seller accounts, and access to nimble garment supply chains, they’ve fueled the acceleration of trends and flooded closets everywhere with a wave of impossibly cheap clothes.
Rest of World spent the last six months investigating this new ecosystem, speaking with manufacturers, collecting social media and product data, making test buys, and interviewing shoppers and industry experts in both China and the U.S. Our reporting reveals how Chinese apparel makers have evolved to cater to the desires of internet-native consumers — and transformed their consumption habits in the process. Capitalizing on this shift are companies like Shein: the most successful, well-known, and well-funded online retailer of its kind.
Shein is now one of the world’s largest fashion companies, but little is known about its origins.
It was founded in 2012 under the name SheInside, and reportedly began by selling wedding dresses abroad from its first headquarters in the Chinese city of Nanjing. (A spokesperson for Shein denied it ever sold wedding dresses, but declined to specify other details about its history.) The company says its founder, Chris Xu, was born in China, though a since-deleted press release described him as from the U.S.
Shein eventually expanded to offer apparel for women, men, and children, as well as everything from home goods to pet supplies, but its core business remains selling clothes targeted at women in their teens and 20s — a generation who grew up exploring their personal style on platforms like Instagram and Pinterest.
Its clothes aren’t intended for Chinese customers, but are destined for export. In May, the company became the most popular shopping app in the U.S. on both Android and iOS, and, the same month, topped the iOS rankings in over 50 other countries. It’s the second most popular fashion website worldwide.
By 2020, Shein’s sales had risen to $10 billion, a 250% jump from the year before, according to Bloomberg. In June, the company accounted for 28% of all fast fashion sales in the U.S. — almost as much as both H&M and Zara combined. The same month, a report circulated that Shein was worth over $47 billion, making it one of the tech industry’s most valuable private startups. (Shein declined to say whether the sales or valuation figures were accurate.)…
…Through its manufacturing partners on the ground in China, Shein churns out and tests thousands of different items simultaneously. Between July and December of 2021, it added anywhere between 2,000 and 10,000 SKUs — stock keeping units, or individual styles — to its app each day, according to data collected by Rest of World. The company confirmed it starts by ordering a small batch of each garment, often a few dozen pieces, and then waits to see how buyers respond. If the cropped sweater vest is a hit, Shein orders more. It calls the system a “large-scale automated test and re-order (LATR) model.”…
…The secret is Shein’s internal software, which connects its entire business from design to delivery. “Everything is optimized with big data,” Lin said. Each of Shein’s suppliers gets their own account on the platform, which spits out information about what styles are selling well and can also quickly identify which might become future hits. “You can see the current sales, and then it will tell you to stock up more if you sell well and what you need to do if you don’t sell well. It’s all there.”
The software contains simple design specifications that help manufacturers execute new orders quickly. “A big brand might need a very high-end designer, or a designer with top technology, and even then may only be able to produce 20 or 30 styles a month,” said Lin. “But Shein does not have high design requirements. It is possible that a typical university student could get started designing quickly, and the output could be high.”…
…To convince suppliers to join its system, Shein had to meet only a very basic bar: paying them on time. Receiving timely payments is a huge problem for factories in China, said Malmsten. “They’ve built a lot of loyalty from their suppliers, so they can have more urgency on their orders,” she said. The result is that over 70% of products on Shein’s website were listed less than three months ago, Malmsten found, compared to 53% at Zara and 40% at H&M. “Shein just kind of blew Zara out of the water,” she said.
7. Casualties of Your Own Success – Morgan Housel
Two scientists, Aaron Clauset of the Santa Fe Institute and Doug Erwin of the Museum of Natural History, explained why in a paper that is dense but summed up in a wonderful sentence: “The tendency for evolution to create larger species is counterbalanced by the tendency of extinction to kill” off larger species.
Body size in biology is like leverage in investing: It accentuates the gains but amplifies the losses. It works well for a while and then backfires spectacularly at the point where the benefits are nice but the losses are lethal.
Take injury. Big animals are fragile. An ant can fall from an elevation 15,000 times its height and walk away unharmed. A rat will break bones falling from an elevation 50 times its height. A human will die from a fall at 10 times its height. An elephant falling from twice its height splashes like a water balloon.
Big animals also require lots of land per capita, which is brutal when land is scarce from farming or natural disaster. They can need more food per unit of body mass than small animals, which is the end game in a famine. They can’t hide easily. They move slow. They reproduce slow. Their top-of-the-food chain status means they usually don’t need to adapt, which is an unfortunate trait when adapting is required.
The most dominant creatures tend to be huge, but the most enduring tend to be smaller. T-Rex < cockroach < bacteria.
Size is nature’s leverage. Sought after for its benefits straight up to the point that it ferociously turns against you.
Same thing applies to companies and investments.
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 Amazon. Holdings are subject to change at any time.
