What We’re Reading (Week Ending 28 September 2025) - 28 Sep 2025
Reading helps us learn about the world and it is a really important aspect of investing. The late Charlie Munger even went 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 28 September 2025):
1. Is this 1996 or 1999? – Ben Carlson
From 1980 through Greenspan’s speech at the tail end of 1996, the S&P 500 was up more than 1,200% in total or a blistering 16.5% return on an annual basis. Valuations were up, up and away. The Netscape IPO occurred a year earlier. Things felt very toppy.
That didn’t matter…
…From the time of Greenspan’s speech through the rest of the decade the S&P would more than double, good enough for an annualized return of nearly 26% through the end of 1999. The market was up 33% in 1997, 28% in 1998 and another 21% in 1999.
The dot-com bubble finally burst in the spring of 2000, cutting the S&P 500 in half along with a drawdown of more than 80% in the Nasdaq…
…The AI capex spending binge is eerily similar to the telecomm buildout that occurred in the 1990s.
Speculative activity is all over the place too — SPACs, meme stocks, IPOs, leverage, story stocks, high valuations, deregulation, etc…
…Many people are trying to figure out whether this is the early stages of a bubble or the end of the road.
Investing would be a lot easier if there were a simple way to predict these types of markets. Unfortunately, there’s not. No one can predict when human nature will take things too far or when it will stop on a dime. The pendulum always swings; we just don’t know how far in either direction…
…If you had invested in the S&P 500 following Greenspan’s speech in December of 1996 and held on until today, you would be up just shy of 10% per year. You would have had to live through two 50% crashes in the next dozen years or so, 9/11, multiple wars, oil going to $150/barrel then negative, the pandemic, 40-year high inflation, the 2022 bear market and about a dozen other run-of-the-mill corrections…
…If you had invested at the peak of the market just before the dot-com bubble burst at the end of 1999, you would be up a little more than 8% per year. That’s not a terrible outcome considering all of the bad stuff you would have had to live through plus that was the most expensive valuations the U.S. stock market has ever seen.
2. Ethical investing, avoiding blow ups, and salacious indictments $RICK – Andrew Walker
But honestly, saying that “I’ll invest in anything, ethics be damned!” is kind of a trite point. Why do I bring it up?
Because I’m actually interested in the potential wisdom of having ethical limits. I wonder if having “ethical passes” on stocks is actually a way of identifying and passing on stocks with tail risks…
…For example, in the mid-2010s, Valeant was an unstoppable acquisition machine. The business model was truly incredible: Valeant acquired underpriced drugs and brought their pricing in line with what the market would bear. Often that pricing was 10x what the old company was charging. Valeant had kind of discovered the holy grail in pharma: they did no risky R&D, every acquisition was insanely and instantly accrettive, returns on investment were astronomical, the company gushed cash, etc.
Of course, what Valeant was really doing was price gouging. In 2015, Charlie Munger called Valeant “deeply immoral”. Valeant was a hedge fund darling at the time, and Munger’s comments raised a lot of eyebrows. I remember a ton of investors who said Munger had lost it, and some hedge funders3 came out swinging pretty hard against Munger.
Within months of Munger’s comments, Valeant was in deep distress (which continues to this day!). Much like raisins mixed with turds are still turds, when a business is a turd no amount of accrettive acquisitions or clever financial engineering can save it. It’s still a turd and, true to form, Munger called a turd a turd…
…Last night, RICK’s got hit with a pretty salacious indictment from the NY AG (the company denies all wrong doing). And it has me questioning my “no ethics in investing” rule…
…It’s the type of stock I very easily could see myself owning: an asset heavy business (RICK tends to own the real estate under their clubs) operating a sin business with a founder CEO who owned a ton of stock and was openly talking about running an “Outsiders” playbook / was planning to buyback tons of stock when it was cheap while also pursuing extremely accrettive (and low multiple) acquisitions?…
…There were/are a lot of issues at Rick’s that you had to get comfortable with to be long to the stock4; in general, the way you could get comfortable with the issues was something like “it’s a strip club business; the whole industry is shady so you kind of just need to accept that and realize ultimately the cash flow of the business + stock ownership of the CEO pushes this higher.” Given the upside here, I think there was a reasonable chance you could talk yourself into that if you were ignoring all ethics…. but, if you used an ethics based screen, then you wouldn’t have even been tempted by the cash flows / alignment issue. You would have seen the shadiness and instantly passed.
3. How to avoid value traps in Asia – Michael Fritzell
- Value traps are stocks that look cheap but end up delivering poor returns.
- The main reasons why stocks end up being value traps include hoarding cash, having obsolescent products, selling commodity products in a market with excess supply, related party transactions, aggressive accounting, industry cyclicality, high debt and government interference…
…How do you avoid the value traps that simply do not return cash to shareholders? Check the company’s cash flow statement.
In IMAX China’s case, you can see that they pulled the dividend in 2023 and spent almost nothing on share buybacks in 2024. So US$17 million of cash built up on the balance sheet, unfortunately out of reach for us minority shareholders…
…So how can you know whether the underlying demand for a product is rising or not? First, check the like-for-like volume numbers reported by the company. Second, observe consumer behavior through customer engagement metrics. Third, check alternative data sources such as Google Trends or Similarweb to see whether interest in the product is rising or falling…
…So, how do you know if a company is selling a commodity product or not?
- You can check the company’s market share: if it’s greater than 50%, then it probably has some type of competitive advantage.
- You can ask customers why they buy the product: is price the determining factor, or are they focusing more on other attributes when buying?
- Finally, is there a market price for the product that fluctuates with supply & demand? If so, then you’re most likely looking at a commodity…
…So, how do you check whether a company has a complex corporate structure? Search on TIKR using the company name and then click on the Ownership tab. If the parent is a holding company, ask ChatGPT what business the parent is involved in. Finally, open up the annual report and search for any related party transactions…
…If the accounting is aggressive, that means that profits are partly illusory. Once the market realizes what the sustainable earnings power of the business truly is, the shares will probably trade down.
How do companies play these games? They might adjust their depreciation schedules, push products to customers on looser payment terms, capitalize expenses, under-estimate credit costs, etc…
…In reality, I sometimes struggle to judge whether an industry has hit a bottom. But I like to look at a company’s operating margins over time, to see whether they’re mean-reverting or not. You can also look at the operating margins of companies in the same industry. Property developers, auto companies and chemical companies are famously cyclical. So to avoid value traps in these industries, consider whether margins may one day head lower…
…At one level, I think it’s helpful to invest in countries with a reliable rule of law, just to avoid negative surprises in the future. But if you have to invest in countries with a poor rule of law, it’s helpful to invest in entities that are aligned with the top leadership. Because if any government interference occurs, it will most likely be on the positive side.
4. Arc’teryx Is Cooked in China – Amber Zhang
On September 19, Chinese firework artist Cai Guoqiang and outdoor apparel brand Arc’teryx jointly staged a fireworks display called “Ascending Dragon” (“升龙”) in Relong Township, Gyantse County, in the Tibet Autonomous Region. The display — set at roughly 5,500 meters altitude — consisted of three sequences of fireworks along the Himalayan mountainous ridge, with imagery meant to evoke a dragon…
…Soon after videos of the event circulated online, the display triggered intense backlash over environmental and cultural concerns. Netizens began calling for a boycott of Arc’teryx, arguing that setting off fireworks in such a fragile alpine ecosystem risked disturbing wildlife, damaging slow-growing vegetation, and polluting the high-altitude environment. Many also criticized the spectacle as disrespectful to local traditions, which hold mountains as sacred and discourage loud disturbances. The sponsored firework show is the complete opposite of environmental protection and respect for nature—values that strongly resonate with China’s affluent urban middle class and outdoor enthusiasts, who form Arc’teryx’s core customer base.
Some netizens have even extended the boycott to Anta Sports (2020.HK), the Chinese sportswear conglomerate that acquired Arc’teryx’s parent company, Amer Sports (AS:NYSE), in 2019 and now effectively owns the brand…
…For a long time, corporate references to “environmental friendliness“ or “social responsibility“ were treated as nice-to-have branding or merely compliance with basic regulations, rather than as priorities with real financial impact. For one thing, investment decisions in China were rarely bound by ESG mandates, and it’s common for consumers to choose price and convenience over whether a brand truly embodied ESG values. (Realistically speaking, many consumers simply lacked the awareness, tools, or access to evaluate how a company performed on ESG benchmarks.)
But that is changing. In recent years, China’s urban middle class has begun voting with their wallets, willing to spend real money to support brands that align with their values…
…Arc’teryx, which first won over hardcore outdoor enthusiasts in the 1990s with its technical hardshell jackets, has in recent years faced criticism in China for drifting away from its image as a serious outdoor brand…
…Many outdoor enthusiasts argue that Arc’teryx’s management has lost touch with the outdoor spirit that once defined the brand. They point out that a true outdoor enthusiast would never have approved a fireworks show that risks damaging the very landscapes where Arc’teryx gear is meant to be worn. To them, the backlash over the event felt less like a one-off mistake and more like the inevitable result of a brand now led by people who no longer live and breathe the outdoors.
Apart from environmental issues, China’s urban middle class — especially those born in the 1980s and 1990s — is paying more attention to how socially responsible companies are. For example, this year more and more netizens are boycotting products from companies that follow the “996 schedule,” the notorious work culture requiring employees to work 9 a.m. to 9 p.m., six days a week, often without clear overtime pay. On Xiaohongshu (Red Note), people are sharing lists of companies that mistreat employees and avoiding their products…
…Generational divides are particularly stark. Those in power today—both in government institutions and corporations—were born in the 1960s and 70s, coming of age during China’s fastest industrialization. Meanwhile, the biggest consumers, born in the 1980s, 90s and 00s, have entirely different mindsets and values. The clash between these perspectives shapes much of the friction we see today.
For instance, apart from Arc’teryx’s terrible marketing decision, another major topic discussed among netizens is how this firework show was even approved in the first place. A firework show of this scale in such a fragile alpine ecosystem would not have been possible without prior authorization from local officials. (In fact, Cai had previously applied to hold the firework displays in Japan and France, only to be rejected by both countries.) While China does have environmental protection laws, the lack of awareness among those in power demonstrates how actual social responsibility, such as law enforcement, has lagged behind the rapidly growing economy…
…For some, over time, it became more about the “I”—the ego—and less about the community that upholds those values. For this reason, I believe the Arc’teryx and Cai firework incident is not merely a case of bad PR or environmental infringement, but an important and valuable reminder—especially for those who take consumers for granted and fail to adapt to these social and cultural changes in China today.
The change in aesthetics also reflects the shifting social climate in China. It offers a glimpse into the many differences in values and the conflicts between generations: how the older generation prizes hard work, while the younger generation rejects the 996 culture; how fierce competition and extreme efficiency has morphed into involution; or how the younger generation increasingly regards “grandeur” as “grandiose” and unnatural rather than aesthetically satisfying.
5. The resilience of consumer spending in the US – Abdullah Al-Rezwan
This graph basically helped me understand how the broader economy is chugging along just fine even though “vibecession” has increasingly become part of the conversation. The vibes are not great because a lot of people are indeed feeling the pinch whereas the high income group remains remarkably resilient. It is because of this high income group macro data may continue to be strong for a while:
the fact that credit card debt levels for the highest-income consumers are currently well below the pre-pandemic trend implies that these consumers have room to spend out of unused credit even if their cash on hand has been depleted.
US economy has increasingly been driven by the high income group for a while as half of the consumer spending (vs ~36% three decades ago) basically comes from just top decile of earners.
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 Alphabet (parent of Google). Holdings are subject to change at any time.
