What We’re Reading (Week Ending 18 June 2023) - 18 Jun 2023
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 18 June 2023):
1. Sharing Memories of Ben Graham with Warren Buffett in Omaha, 2023 – Beyond Ben Graham blog
“When I worked with him,” Mr. Buffett continued, “Ben told me: ‘Don’t worry too much about making money. It will change how your wife lives but not how you live.’” Mr. Buffett laughed gleefully. With a jovial smile, he remembered Grandpa Ben’s advice to him: “‘You and I will still wear the same clothes and eat at the same cafeteria, so relax.‘”…
…I suspect that ours was an unusual encounter for Warren, with no talk of investments, stocks, earnings, companies, banks, and the economy. Instead, I asked him, “How did Ben treat you, when you went to work for him at Graham-Newman?” In 1954, Warren had been twenty-four years old.
“Kindly. Ben treated me kindly. Same as he treated everyone else in the office,” Warren asserted.
I pictured my grandfather, his ready smile, his benevolent presence, the way he had welcomed me to his Aix-en-Provence cottage when I arrived for an unannounced visit, scruffy from weeks of camping, my long hair in dire need of a wash, at the age of twenty-one.
On our second visit with Warren, I asked him: “Would you say that you and Ben became friends?” When he didn’t answer right away, I continued: “In some of Ben’s letters and postcards in your files, he expressed a wish for you and Susie to visit him in California. That sounds like friendship to me.”
“Well, I think I wanted the friendship more than he did.” Warren paused, and when he spoke again, his voice cracked. “Ben was my hero and my friend.” His light blue eyes widened and his face took on a youthful, eager, and fierce expression. “It helps to have heroes who are better than you.”
I felt honored to be in the room. A deep, essential part of me perceived, from the tenor of Warren’s voice, his fervent gaze, that Warren loves my grandfather. Not just back in the ’50s when he venerated Ben as his most admired Columbia Business School professor and his dream boss. Not just in the late ’50s when he and his wife Susie stayed at the Beverly Hills Hotel and joined Ben and Estey for dinner, or in 1968 when Warren organized a tribute to his mentor by convening twelve of Ben’s former Columbia students (including himself, Charlie Munger and Walter Schloss) on Coronado Island in San Diego to listen to Graham, the Great Man. Ben died in 1976, and Warren still finds meaning in his relationship with Ben. We humans have the capacity to feel love for a person who has passed—love that nourishes the soul and informs how we live. Warren’s heartfelt connection with Ben continues to sustain him…
…In his gracious treatment of me and my husband, Warren embodied the kindness and generosity he saw in Ben Graham. He treats the twenty-four staffers who work with him at the Omaha office considerately too. Investment manager Ted Weschler appeared relaxed and glad to be there. Each person we chatted with in the lunch room seemed at ease and content, in marked contrast to the stressed employees I have encountered in Bay Area tech firms.
Warren Buffett follows in Ben Graham’s footsteps by manifesting kindness in his treatment of shareholders, and compassion in his way of conducting business. For example, back in the ’70s, Warren Buffett stood up for Berkshire Hathaway textile workers the way Ben Graham advocated for ordinary investors when Ben compelled Standard Oil to distribute surplus cash to shareholders in the 1928 Northern Pipeline contest. From a business standpoint, Buffett knew he should close the failing Berkshire Hathaway textile mill and invest its assets in a profitable enterprise, but he chose to keep it open in order to give the workers a livelihood.
Inspired by his hero Ben Graham’s generosity, Warren Buffett has far surpassed Ben in giving to charity. In 2022, according to Forbes, Warren’s 17th annual summer gift brought his total lifetime giving to charitable foundations to a record $48 billion, “[solidifying] his place as the likely biggest philanthropist of all time.”…
…A smiling executive assistant boxed up the papers. “It’s been so nice to meet you in person,” she enthused. “You know, Warren talks about your grandfather all the time.”
“You mean, because he was expecting my visit?” I asked.
“No,” she answered. “I’ve been here twenty-five years. He talks about Ben Graham all the time.”
2. Can We Have a New Bull Market With 3% Unemployment? – Ben Carlson
Many historical market relationships have been turned on their head since the pandemic but there has been a clear correlation between stock market returns and the unemployment rate over the past 75 years or so…
…There is a clear pattern in these results.
Average annual returns have been higher from higher unemployment rates and lower from lower unemployment rates…
…It can also be instructive to look at the range of returns around these historical averages. Here those are for 10 year performance:
You can have exceptional long-term returns from low unemployment rates. It’s just that you get a much higher floor investing when the economy is falling apart than when everything is humming along from a labor market perspective.
Markets are often counterintuitive. Historical relationships are helpful for setting expectations but they’re not written in stone.
So we could get a rip-roaring bull market from an unemployment rate of 3% or so but it’s probably not the base case.
3. Microsoft’s Satya Nadella Is Betting Everything on AI – Steven Levy and Satya Nadella
STEVEN LEVY: When did you realize that this stage of AI was going to be so transformative?
SATYA NADELLA: When we went from GPT 2.5 to 3, we all started seeing these emergent capabilities. It began showing scaling effects. We didn’t train it on just coding, but it got really good at coding. That’s when I became a believer. I thought, “Wow, this is really on.”
Was there a single eureka moment that led you to go all in?
It was that ability to code, which led to our creating Copilot. But the first time I saw what is now called GPT-4, in the summer of 2022, was a mind-blowing experience. There is one query I always sort of use as a reference. Machine translation has been with us for a long time, and it’s achieved a lot of great benchmarks, but it doesn’t have the subtlety of capturing deep meaning in poetry. Growing up in Hyderabad, India, I’d dreamt about being able to read Persian poetry—in particular the work of Rumi, which has been translated into Urdu and then into English. GPT-4 did it, in one shot. It was not just a machine translation, but something that preserved the sovereignty of poetry across two language boundaries. And that’s pretty cool.
Microsoft has been investing in AI for decades—didn’t you have your own large language model? Why did you need OpenAI?
We had our own set of efforts, including a model called Turing that was inside of Bing and offered in Azure and what have you. But I felt OpenAI was going after the same thing as us. So instead of trying to train five different foundational models, I wanted one foundation, making it a basis for a platform effect. So we partnered. They bet on us, we bet on them. They do the foundation models, and we do a lot of work around them, including the tooling around responsible AI and AI safety. At the end of the day we are two independent companies deeply partnered to go after one goal, with discipline, instead of multiple teams just doing random things. We said, “Let’s go after this and build one thing that really captures the imagination of the world.”…
…OpenAI CEO Sam Altman believes that this will indeed happen. Do you agree with him that we’re going to hit that AGI superintelligence benchmark?
I’m much more focused on the benefits to all of us. I am haunted by the fact that the industrial revolution didn’t touch the parts of the world where I grew up until much later. So I am looking for the thing that may be even bigger than the industrial revolution, and really doing what the industrial revolution did for the West, for everyone in the world. So I’m not at all worried about AGI showing up, or showing up fast. Great, right? That means 8 billion people have abundance. That’s a fantastic world to live in.
What’s your road map to make that vision real? Right now you’re building AI into your search engine, your databases, your developer tools. That’s not what those underserved people are using.
Great point. Let’s start by looking at what the frontiers for developers are. One of the things that I am really excited about is bringing back the joy of development. Microsoft started as a tools company, notably developer tools. But over the years, because of the complexity of software development, the attention and flow that developers once enjoyed have been disrupted. What we have done for the craft with this AI programmer Copilot [which writes the mundane code and frees programmers to tackle more challenging problems] is beautiful to see. Now, 100 million developers who are on GitHub can enjoy themselves. As AI transforms the process of programming, though, it can grow 10 times—100 million can be a billion. When you are prompting an LLM, you’re programming it.
Anyone with a smartphone who knows how to talk can be a developer?
Absolutely. You don’t have to write a formula or learn the syntax or algebra. If you say prompting is just development, the learning curves are going to get better. You can now even ask, “What is development?” It’s going to be democratized.
As for getting this to all 8 billion people, I was in India in January and saw an amazing demo. The government has a program called Digital Public Goods, and one is a text-to-speech system. In the demo, a rural farmer was using the system to ask about a subsidy program he saw on the news. It told him about the program and the forms he could fill out to apply. Normally, it would tell him where to get the forms. But one developer in India had trained GPT on all the Indian government documents, so the system filled it out for him automatically, in a different language. Something created a few months earlier on the West Coast, United States, had made its way to a developer in India, who then wrote a mod that allows a rural Indian farmer to get the benefits of that technology on a WhatsApp bot on a mobile phone. My dream is that every one of Earth’s 8 billion people can have an AI tutor, an AI doctor, a programmer, maybe a consultant!…
… It’s all about saying, “Hey, can there be a more natural interface that empowers us as humans to augment our cognitive capability to do more things?” So yes, this is one of those examples. Copilot is a metaphor because that is a design choice that puts the human at the center of it. So don’t make this development about autopilot—it’s about copilot. A lot of people are saying, “Oh my God, AI is here!” Guess what? AI is already all around us. In fact, all behavioral targeting uses a lot of generative AI. It’s a black box where you and I are just targets.
It seems to me that the future will be a tug-of-war between copilot and autopilot.
The question is, how do humans control these powerful capabilities? One approach is to get the model itself aligned with core human values that we care about. These are not technical problems, they’re more social-cultural considerations. The other side is design choices and product-making with context. That means really making sure that the context in which these models are being deployed is aligned with safety…
…You still haven’t said whether you think there’s any chance at all that AI is going to destroy humanity.
If there is going to be something that is just completely out of control, that’s a problem, and we shouldn’t allow it. It’s an abdication of our own responsibility to say this is going to just go out of control. We can deal with powerful technology. By the way, electricity had unintended consequences. We made sure the electric grid was safe, we set up standards, we have safety. Obviously with nuclear energy, we dealt with proliferation. Somewhere in these two are good examples on how to deal with powerful technologies…
…AI is more than just a topic of discussion. Now, you’ve centered Microsoft around this transformational technology. How do you manage that?
One of the analogies I love to use internally is, when we went from steam engines to electric power, you had to rewire the factory. You couldn’t just put the electric motor where the steam engine was and leave everything else the same. That was the difference between Stanley Motor Carriage Company and Ford Motor Company, where Ford was able to rewire the entire workflow. So inside Microsoft, the means of production of software is changing. It’s a radical shift in the core workflow inside Microsoft and how we evangelize our output—and how it changes every school, every organization, every household.
How has that tool changed your job?
A lot of knowledge work is drudgery, like email triage. Now, I don’t know how I would ever live without an AI copilot in my Outlook. Responding to an email is not just an English language composition, it can also be a customer support ticket. It interrogates my customer support system and brings back the relevant information. This moment is like when PCs first showed up at work. This feels like that to me, across the length and breadth of our products.
4. Picking a Stock for the Year 2048 – Jason Zweig
Tiffany Gray, 22 years old, is a senior majoring in finance and wealth management at Delaware State, a historically Black university in Dover, Del. Jonathan Rivers, 20, is a junior double-majoring in environmental sciences and religious studies at the University of Virginia.
Ms. Gray and Mr. Rivers, along with their peers, will assemble a portfolio of perhaps 15-20 stocks and lock it in place for the next 25 years.
That sounds crazy, and maybe it is, but investors of all ages can learn from these young people.
They are part of an extremely long-term experiment created by Thomas Gayner, chief executive of Markel Corp, a Glen Allen, Va.-based insurance company. Mr. Gayner has run Markel’s investment portfolio since 1990, building it up to $22 billion with a patient, conservative approach.
He has established a student investment fund at each of the two universities. By the year 2047, Mr. Gayner’s family will contribute, in 25 annual installments, a total of $750,000 to the two clubs.
The students—29 of them this year at Virginia, nine at Delaware State—will use that money to pick investments that will be frozen for the next 25 years. Each year, the members will buy another round of picks for the next quarter-century. No one, no matter what, will ever be able to sell anything.
Starting in year 26, the members who picked the stocks 25 years earlier will disburse half the accumulated money for scholarships; the other half will be reinvested for the future by that year’s members…
…One lesson from these new clubs is old: the astonishing power of letting your winners run for as long as possible. You can’t lose more than 100% on even your biggest losers (unless you bought them with borrowed money), but the potential gains on your biggest winners are boundless…
…The key is not selling. In a 1984 article called “The Coffee Can Portfolio,” veteran investor Robert Kirby described a client’s husband, who had exactly copied all the buy recommendations Mr. Kirby’s firm had made to his wife, putting about $5,000 in each.
Unlike her, however, the husband had ignored all the sell recommendations. He’d never sold a share. Several of his holdings grew to more than $100,000 apiece. One, which became Xerox Corp., surpassed $800,000, greater than the value of his wife’s entire portfolio.
The long-term tailwind from letting your winners run is easy to underestimate; the human mind isn’t built to extrapolate giant growth rates over multidecade periods…
…Another leader of the Virginia club, Jacob Slagle, 21, says, “It really forces you to think of businesses in a different way: Can it survive 25 years?”
Omar Parker, Jr., a 20-year-old member of the Delaware State club, is already thinking beyond the year 2048: “When we’re long gone,” he says, “our fund will be a legacy to the future generations.”
5. The Exercise Problem – Paul Skallas
The exercise problem is this. We did not evolve to want to exercise, it was just a necessary part of life for survival.
We have created a society where we do not have to physically move our bodies very much in order to survive. We’ve built an incredibly convenient world. Physical stressors have disappeared. We do not need to hunt for our food, we drive to work and most office work and entertainment is sedentary. We can go through life working and living just sitting down day after day. We can even get really rich doing that. The incentives for moving around aren’t really there anymore.
But that isn’t the world we evolved from, nor have our bodies evolved to live in a sedentary world. We need to move around or else there will be consequences. But we haven’t figured out how to fit moving around in our modern world yet.
For nearly every day of their lives, hunter-gatherers, farmers and villagers engage in hours of physical work because they lack cars, machines and other labor saving devices. Their daily existence requires walking many miles and carrying things.
We have become so efficient and automated that farmers today have worse cardiovascular health than non-farmers. City people are healthier today. Which is probably the first time that’s ever occurred in history…
…Researchers put trackers on the modern hunter-gatherer tribe called the Hadza. They found that the Hadza are physically moving at pace of what we call exercise at least 90 minutes a day. Everyday. Including moving around all the time doing things. This population also has a low level of cardiovascular disease, including hypertension and optimal levels for biomarkers of cardiovascular health. But these people were not exercising. They are just responding to the needs of their environment. Exercise is something else.
Exercise can be defined as a voluntary, planned, structured physical activity undertaken for the sake of health and fitness. It’s a modern phenomenon. We shouldn’t confuse exercise with physically moving around. We moved around for a variety of reasons. For example, play is an end to itself, it is not exercise. Every animal plays…
…Only about 20-30 percent of Americans exercise at even decent government approved intervals. Which is the lowest common denominator. Recent studies show you can exercise 13 hours a week at moderate intensity and still get healthier…
…Of that 20-30 percent who actually work out, how many enjoy it? Only Half. The other half do not want to be there. They hate it. I’m sure you know what I’m talking about. So now we’re down to 10% of Americans who enjoy exercise for the sake of exercise. Which basically means enjoying exercising can be considered a fetish.
This is a serious problem. It is not trivial. The survey also found that 54 percent of Americans mentally check out of their workouts because they’re so bored. Another 18 percent claim their body is simply on autopilot during their routines.
Who’s fault is it that 90% of people dislike exercising? Is it their fault? I don’t think so. There’s something wrong inherent with the concept of exercise we need to address in order to solve the problem of moving around. The Fitness influencer yelling at you to workout is a symptom of a deeper issue. We haven’t figured out the exercise problem yet at scale…
…It makes sense that most people hate exercise since it is a misalignment from our evolutionary environment. But some people really do enjoy it. Who are some of these 10% of exercise enjoyers? What is their motivation?
1) The Corporate Endurance Athlete
I’ve worked at a number of medium and big companies and there has been a consistent trend throughout: You won’t find many powerlifters in upper management. What you will find is people who love doing cardio and endurance sports like running or bicycling for many, many miles. There are some statistics that back it up…
…But mainly, It takes a lot of consistency to reach the top of a hierarchy. And consistency means doing the same thing day after day and not getting tired of it. It’s not surprise enjoying endurance exercising (running a lot of miles every day) selects for a certain type of person.
Not only does this person have a high tolerance for boredom, but it could be coupled with a high tolerance of pain. They do not mind using a treadmill or doing a triathlon. The history of the treadmill showcases its evolution from a form of punishment to a widely used exercise equipment. They were created in the 19th century. These early treadmills were primarily used for punishment in prisons and workhouses. In these institutions, prisoners and inmates were made to walk or run on the treadmill for hours as a form of hard labor…
…2) The Bodybuilder
Many young males really enjoy going to the gym because it allows them to build their body to look a certain way. Unfortunately, that certain way only started a little over 100 years ago.
As a young man, I started going to the gym to build muscle to look better. It wasn’t for “health”. It was for show. Later on, I transitioned to Jiu-Jitsu and Muay Thai, and then to other forms of exercise. But if I stayed on the bodybuilding mindset I may have just gotten on various forms of steroids.
Is bodybuilding healthy? It’s certainly better than not moving at all and being sedentary. Absolutely. But skews your image of a lindy healthy body. How functionally strong athletes look like in the absence of steroids. Or just focusing on hypertrophy & muscles for show, not function…
…3) The Anti-Aging Warrior
The other exercise lover is the man who fears death. He will force himself to love exercise for the sake of staying on this planet. Death is a tremendous motivator. Especially to a man who has a life he enjoys and is succesful. This type of man is his 50s, or 60s. Some examples include Peter Attia, Bryan Johnson. There is no emphasis on joy or fun. The exercise is deeply serious and must be done…
…I sometimes think about the island with the oldest people in the world and how they just look a little happier just living their lives in the environment instead of being on this mission to exercise to stay alive.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. We currently have a vested interest in Markel and Microsoft. Holdings are subject to change at any time.
