What We’re Reading (Week Ending 03 August 2025) - 03 Aug 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 03 August 2025):
1. The Jamie Dimon Interview – Ben Gilbert, David Rosenthal, and Jamie Dimon
Ben: It seems like your philosophy is that the worst thing will happen. So just plan for it. Don’t say, oh, we’re good as long as this crazy, insane four Sigma event doesn’t happen. You’re like, no. That will happen, and it happens often.
Jamie: Yeah. When I look at it, when I do stress tests and a risk for high yield, I remember getting to J.P. Morgan and going through the risk books. Their stress test was that high yield would move 40%, the credit spread. That time was at 400 or whatever it was. That means 560.
I said, no. Our stress test is going to be worst ever. Worst ever was 17%. They said, that’ll never happen again. The market’s more sophisticated. Well, in 2008, it hit 20% and you couldn’t have sold a bond. There was no market. So those things do happen.
The point isn’t that you’re trying to guess them. The point is you can handle them, so you continue to build your business. I always look what I call the fat tails and manage that we can handle all the fat tails. Not the stress test the Fed gives us, but all the fat tails.
Markets down 50%, interest rates up to 8%, credit spreads back to worst ever. Of course, your results will be worse, but you’re there. The thing about financial services, leverage kills you. Aggressive accounting can kill you, which a lot of companies do. Also, confidence. If you lose money as a financial company—I always knew this too—the headlines are people read that. If they’re a line on putting their money with you, they look at that difference.
Ben: They lose trust.
Jamie: They lose trust, and that’s what’s caused you’ve seen runs on banks. You saw some recently because people take their money out.
Ben: One, there’s a thing that you just said, which is that you might do worse, but you’re there. There’s this trade-off that you make where you’re less profitable in the short-term, but at least you stick around.
If you look back at the companies that you’ve run—Bank One, J.P. Morgan Chase—is that true in the good years that you’ve actually been less profitable than those who are risk on?
Jamie: A little bit. You’re saying that if you look at the history of banks from up until 2007, a lot of banks were earning 30% equity. Most of them went bankrupt. We never did that much. But in 2008 and 2009, we were fine and they weren’t.
But you want to build a real strong company with real margins, real clients, conservative accounting, where you’re not relying on leverage. It’s very easy to use leverage to jack up returns in any business, but in banking it could be particularly dangerous…
…David: And 2006 on Wall Street is like, go, go, go baby. It’s like the 1980s all over again.
Ben: I think you had the same incentives as everyone else, but you behaved very differently. Am I missing something? Did you have the same incentives or did you—
David: You pulled J.P. Morgan back hard on the risk side in 2006.
Jamie: I did. There were cracks out there in 2006. You may remember the quants. There started to be a quant problem late in 2006. We definitely saw subprime getting bad. I pulled back on subprime. I wish I had done more, because if you look at what I did, you say, okay, well you saved half the money, but you would’ve saved more.
David: You still had some losses.
Jamie: Yeah, but we also had, I’m going to say less, maybe a third of the leverage of the big investment banks and a lot more liquidity. So in 2006, I started to stockpile liquidity, and looking at the situation, I was quite worried. You may not remember this, but the leverage, because of accounting rules and Basel III, Basel I, investment banks, particularly the big investment banks, went from 12 times leverage to 35 times leverage. And it was go, go. The CMOs, the bridge loans, the whole thing.
In 2007, the bridge book of Wall Street was $450 billion. Today it’s $40 billion. J.P. Morgan can handle the whole $40 billion today though we’re not the $40 billion today, and they were much more leveraged deals. A lot of them fell apart, collapsed. Of course, and that was before you had the collapse in the mortgage mortgage, which really took down a lot of these banks.
Ben: But you did have the same incentives and you had the same access to information that a lot of these other folks did, but you didn’t blow up. What explains this? Because usually, behavior follows incentives.
Jamie: Well, first of all, if you work for me, I would tell you I don’t care what the incentive is. Don’t do the wrong thing. Don’t do the wrong thing to the client. If you’re the client, how would you want to be treated? I had gotten rid of, I mentioned that one risk thing. There were multiple risk things like that. They were being paid to take the risk.
David: You were telling us about the auto loan business.
Jamie: Yeah, but they’d be being paid. But the second I put in all these new risk controls, all of a sudden you weren’t making money by taking that leverage, because I was looking at how much capital it can actually be deployed if things get bad. So I was looking at earnings through the cycle, but very importantly, all of these investment banks were doing side deals, private deals, three year deals, five year deals, I got rid of almost all of them.
David: This is for comp with senior bankers.
Jamie: Almost all of them. Today at J.P. Morgan Chase, we do do things—and I know some of my partners in the room here—but we all know about it. There are no winks. There are no nods. There are no side deals. There’s almost no one paid on a particular thing, because if you’re paid on a particular thing, you can do the wrong thing, meanwhile not helping the company manage its risk or something like that. So we change the incentive programs.
I’m quite conscious about incentive programs that they don’t create mis misbehavior. But it’s also very important if you’re in a company and you say the incentive programs do that, you should tell the company. This incentive plan is not incentivizing the right behavior versus the customer. And a lot of it was leverage.
If you look at the leverage in some of these securitization and mortgage books, if you have 30 times leverage and you’re getting 20% of the profits, you’ll go to 40 times leverage. It literally will add 25% to your bonus. So I got rid of the profit pool 20% and the leverage. I lost some people too in the meantime…
…[Jamie:] If you look at the financial services, very often it’s the new products that blow up. It takes a while. They haven’t been through a cycle. You had that with equities way back in 1929, you had it with options, you had it with equity derivatives, you had it with mortgages. Even Ginnie Maes at one point blew up, even though they’re government guaranteed.
David: Arguably, you had it with quant and with LT and CM.
Jamie: It happened with quant. It happened with leveraged lending. People then become more rational how they run these balance sheets now they think through the risk.
Ben: I have to ask you, is this private credit today?
Jamie: I don’t really think so. It’s $2 trillion. It’s grown rapidly. That’s an issue. The other thing about Mark is there are some very good actors in it who know what they’re doing. Customers like the product. I always say, well, the customers like it.
But there are also people who don’t know what they’re doing, and it’s grown rapidly. There may be something in there would become a problem one day. I don’t think it’s systemic. That $2 trillion, the mortgage market, when the time it blew up was (I’m going to say) $9 trillion, and a trillion dollars was lost.
David: A trillion dollars was more than a trillion dollars back then.
Jamie: Yeah, a lot of these private credit are not leveraged like that. But that doesn’t mean there won’t be problems. It’s slightly different. You look at the whole system. There are other things out there that are leveraged that can cause problems. Of course, people take secret leverage in the ways you don’t necessarily see it.
Ben: What are some of these in your mind that are potentially problematic today?
Jamie: When you look at asset price, they’re rather high. Now, I’m not saying that’s bad, but if today PEs were 15 as opposed to 23, I say that’s a lot less risk. A lot less to fall, and you have some upside. I would say at 23, there’s not a lot of upside, and there’s a long way to fall. That’s true with credit spread…
…Ben: Silicon Valley Bank and First Republic both fail. You’re there again. Did you see it coming? What lessons did you learn from how 2008 went that you could apply in 2023? Obviously you bought First Republic.
Jamie: Silicon Valley Bank did some very good stuff. They both had something unique that we didn’t know at the time. I’m going to call them concentrated deposits. Not uninsured because people missay that concentrated, so a lot of venture capital.
What happened with Silicon Valley Bank and First Republic is some of these large venture capital companies—hundreds of them, maybe a thousand—told their constituent clients that they invested in, who all banked in the Silicon Valley and First Republic, the banks aren’t safe, get out, and they all removed their deposits.
Silicon Valley Bank (I think) had $200 billion deposits, $100 billion in one day. That caused the problem. But they also had other problems. They didn’t have proper liquidity, they didn’t have their collateral posted at the Fed, and they had taken too much interest rate exposure.
The interest rate exposure was hidden by accounting. It was called held to maturity, where you don’t have to mark even treasuries to market. I always hated held to maturity, but it gives you better regulatory returns and stuff like that. But when that held to maturity, if you said what’s the tangible book value of one of these banks, and you said it was 100, well all of a sudden it was 50 if you just marked that one thing to market.
Now you’re into judgment land. At what point, if you saw a bank where just that one mark had the tangible book value drop to 40 or 30 cents to a dollar, would you panic? I would’ve said, that’s too much risk.
The regulators helped us because they said rates are going to stay low forever. So these banks bought a lot of 3% mortgages. When rates went up to 5% worth 50 cents on the dollar, that was it. They took too much instrument exposure known to management, known to the regulators, and fixable.
2. How Bread vs Rice Molded History – Tomas Pueyo
This means that rice nourishes families on half the land that wheat requires. Which means population density in rice areas can be twice as high as in wheat areas, or four times with double cropping.2 A hectare of land can feed 1.5 families with wheat and 6 with rice.
Yet rice paddies also require a lot of work—twice as much as wheat. And that work is almost year-round: preparing paddies, raising seedlings in nurseries, transplanting every single seedling by hand into flooded fields, managing water, pumping it,3 weeding,4 harvesting, and threshing—often followed by a second rice crop or a winter crop. These tasks peak during transplanting and harvest, creating critical seasons where a huge amount of work must be done in a short window of time…
…Wheat farming historically had a more seasonal rhythm with periods of relative quiet. Wheat is typically sown in the fall or spring and then mainly just left to grow with the rain. Aside from episodic weeding or guarding the fields, there was less continuous labor until harvest time. Harvest itself was a crunch period requiring many hands with sickles—European villages would collaborate during harvest, and farmers might hire extra reapers.
These differences made these regions diverge across politics, culture, and economy…
…Wheat grows in drier, colder areas than rice and requires much less labor, but also produces less calories per unit of land than rice. As a result, rice areas had:
- More population density
- Stronger centralized states
- A psychology and cultures that foster social harmony and collaboration
Meanwhile, wheat encouraged the colonization of the New World, allowed it to grow its wealth through farming fast, and accelerated the development of the Industrial Revolution, which increased the economic divergence between wheat and rice areas.
In other words, climate determined crops, which then heavily influenced our societies. Even decades after most of us have stopped farming, these effects carry into our subconscious cultures.
3. Are Diamonds Even a Luxury Anymore? De Beers Reckons With Price Plunge – Jenny Strasburg and Suzanne Kapner
Now diamonds can be made in labs that mimic the earth’s extreme pressure and temperatures, but for a fraction of the price. A decade ago, such man-made gems were novel. Today they are mainstream, and increasingly challenging the perception of diamonds as a luxury accessory.
Walmart sold its first lab-grown diamonds in 2022, but now the stones make up half of its diamond jewelry assortment.
Signet Jewelers, which says it is the world’s largest retailer of diamond jewelry, with brands that include Kay Jewelers, Zales and Jared, is partnering with De Beers to extol the virtues of natural diamonds in a new marketing campaign. But last month, Signet said it, too, has been adding more lab-grown diamonds to its fashion jewelry, which was among the factors helping to pull the company out of a prolonged sales slump…
…More than half the engagement rings purchased last year in the U.S. had a lab-created diamond, a 40% increase compared with 2019, according to a survey of nearly 17,000 U.S. couples by wedding planning website The Knot…
…Manufactured diamonds are 100% carbon, with the same hardness and sparkle of the original. Nevertheless, De Beers’s future depends on consumers who believe that authenticity can’t be made in a lab…
…De Beers gets its name from two Dutch-Afrikaner brothers, Diederik Arnoldus de Beer and Johannes Nicolaas de Beer, who settled in South Africa and discovered diamonds on their farm in the late 1800s.
De Beers grew to control some 90% of the world’s diamond trade. When diamond demand collapsed during the Great Depression, De Beers hired the advertising agency N.W. Ayer, which convinced Hollywood actresses to wear diamond rings. One of its copywriters in 1947 came up with the now famous tagline “A Diamond is Forever.”
Over coming decades, De Beers broadly succeeded in dictating how much should be spent on a diamond engagement ring: “Isn’t two months’ salary a small price to pay for something that lasts forever?” asked a 1980s De Beers ad…
…Even gem experts need specialized machinery to tell the difference between quality lab-grown and mined diamonds. De Beers is now trying to draw more attention to the hard-to-see differences, by asking jewelers to shell out $9,500 for a new diamond-testing device called DiamondProof.
The device is about the size of an air fryer and designed to be displayed on jewelry-store counters. It takes just a few seconds to show color-coded results: If the stone’s image glows blue, it’s natural—a result De Beers says it can guarantee. If it glows yellow, it’s lab-grown or needs further testing…
…Sales of lab-grown diamonds at Walmart, the country’s second-largest fine jewelry seller behind Signet—according to National Jeweler magazine—soared 175% in 2024 compared with the prior year…
…Signet had been more reluctant to jump on the lab-grown bandwagon than other middle-market jewelers, which some analysts say contributed to a prolonged sales decline, plunging stock price and a large shareholder who had pushed for a sale of the company.
Signet Chief Executive J.K. Symancyk, who took the helm in November, laid out a new strategy in March that includes pushing more heavily into lab-grown diamonds for fashion jewelry like tennis bracelets, earrings and necklaces, while aiming to protect the allure of natural stones for milestone purchases like engagement rings.
Sales of fashion jewelry with lab-grown diamonds increased 60% in the most recent quarter, compared with a year ago, one factor that helped the company’s overall sales return to growth for the first time since April 2022.
He added that nearly two-thirds of Signet’s customers still prefer mined diamonds for special occasions like anniversaries and engagements. “We see natural diamonds as lasting and enduring,” Symancyk says. “Fashion trends change.”…
…The influx of lab-grown diamonds has pushed prices down for both types of stones.
The retail price of a 1-carat lab-grown diamond has plunged 86% since the beginning of 2016, to about $745, Zimnisky estimates. The price of the same size natural diamond is down 40% over that period to $3,925. Back in 2016, there was only about a $1,000 difference between a 1-carat lab-grown and natural diamond. A natural diamond now costs about five times as much as man-made stone.
4. Trump’s Commerce Secretary Loves Tariffs. His Former Investment Bank Is Taking Bets Against Them – Louise Matsakis and Zoë Schiffer
Cantor Fitzgerald, a financial services company led by the sons of US commerce secretary Howard Lutnick, is creating a way for investors to bet that President Donald Trump’s signature tariffs will be struck down in court…
…Lutnick ran Cantor Fitzgerald for nearly 30 years until he was confirmed by the Senate in February, when he turned over control of the firm to his sons, Kyle and Brandon, who are both in their twenties…
…But the investment bank that made Lutnick a billionaire is now letting certain clients wager that Trump’s tariffs will eventually be ruled unlawful, at which point companies that have paid the import duties can apply to get their money back.
In a letter seen by WIRED, a representative from Cantor said the firm was willing to trade tariff refund rights for 20 to 30 percent of what companies have paid in duties. “So for a company that paid $10 million, they could expect to receive $2-$3 million in a trade,” the representative wrote. “We have the capacity to trade up to several hundred million of these presently and can likely upsize that in the future to meet potential demand.”…
…“Secretary Lutnick knows nothing about this decision because he has no insight or strategic control over Cantor Fitzgerald,” wrote Kristen Eichamer, press secretary for the Department of Commerce, in an email to WIRED. “He has fully complied with the terms of his ethics agreement with respect to divesture and recusals and will continue to do so.”
Trump announced in February that the US would put steep tariffs on goods from Mexico and Canada under the International Emergency Economic Powers Act (IEEPA). He widened the trade war in April to include nearly every nation that sells goods to the US, which Trump said would now be subject to “reciprocal” tariffs ranging from 10 to 50 percent.
In response, there was a flurry of lawsuits, including one from a group of small businesses that sued the Trump administration in the US Court of International Trade, arguing that the president exceeded his authority and the tariffs should be ruled illegal. The trade court sided with the plaintiffs, but the Trump administration appealed the decision, and the appeals court allowed the duties to remain in place while the case is pending.
5. Yet Another Munger Masterclass: The 2003 Wesco Financial AGM – Kingswell and Charlie Munger
(7) “The central idea of a margin of safety when you’re making investments will never be obsolete. And the idea of making the market your servant and not your instructor will never be obsolete, either. Those two basic ideas of Ben Graham are basically reality cubed. The idea of being objective and dispassionate, which was also in Graham, that will never be obsolete. So Graham had a lot of ideas that were wonderful.”…
…(8) “I’ve picked up Ben Graham’s main ideas and discarded the practices he used that don’t suit me. I don’t want to go around now buying stocks at a big discount from liquidating value, of businesses that are mediocre or worse, run by people I don’t like, and sit there saying no matter how horrible it is to watch, it will bounce by 25%. I don’t think that approach would work very well given our size of capital. So it’s natural to follow my temperamental attraction toward the better businesses.”…
…(12) “A lot of people rise to power in big corporate bureaucracies who are very nice people and good at doing things in a fairly limited way, but whose general powers of capital allocation are inadequate. And, of course, those who are advising them — the investment bankers, the consultants, and so forth — will mislead you 95% of the time.”…
…(14) “If you could actually sit down and talk to a key manager one-on-one for an hour or so — and if you’re a very smart person — that could be a significant plus. On the other hand, I’m enough of a cynic to believe an intelligent person might be helped 60% of the time and the other 40% of the time he might be misled. So, on balance, whether it’s worth the time, I can’t tell you.”…
…”Years ago”, he said, “we were interested in a particular stock and Warren went and talked to the CEO for two or three hours at lunch — and he thought he was the biggest horse’s ass he’d ever seen. So we sold every share. Well, the thing compounded at 15% per annum for about 20 years thereafter. It finally got a big denouement [and dropped in price], but the idea that meeting the management will always help you… Well, that always amused me — to watch that stock galloping upward.”
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. We currently do not have a vested interest in any companies mentioned. Holdings are subject to change at any time.
