What We’re Reading (Week Ending 13 October 2024) - 13 Oct 2024
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 13 October 2024):
1. An Interview with Meta CTO Andrew Bosworth About Orion and Reality Labs – Ben Thompson and Andrew Bosworth
Orion, Meta’s AR glasses, is spectacular. I must start with the caveat that this is not a shipping product; the glasses that I tried felt like a consumer-ready product, but they reportedly cost $10,000 each, and Meta has decided to hold off on shipping a consumer version until they can bring the price down. That will be a tall order, and that challenge should be kept in mind with everything that follows.
What follows is unadulterated praise. Orion makes every other VR or AR device I have tried feel like a mistake — including the Apple Vision Pro. It is incredibly comfortable to wear, for one. What was the most striking to me, however, is that the obvious limitations — particularly low resolution — felt immaterial. The difference from the Quest or Vision Pro is that actually looking at reality is so dramatically different from even the best-in-class pass-through capabilities of the Vision Pro, that the holographic video quality doesn’t really matter. Even the highest quality presentation layer will pale in comparison to reality; this, counter-intuitively, gives a lot more freedom of movement in terms of what constitutes “good enough”. Orion’s image quality — thanks in part to its shockingly large 70 degree field of view — is good enough. It’s awesome, actually. In fact — and I don’t say this lightly — it is good enough that, for the first time ever, I felt like I could envision a world where I don’t carry a smartphone.
Orion is a standalone product, at least in terms of needing a phone; instead there is a “puck”, an oblong unit that holds the compute for the operating system and connectivity, and which connects to the glasses wirelessly. The glasses themselves contain the compute necessary for low-latency calculations that pertain to the actual display. One challenge I see in this model is input: voice works well, and the wristband that detects the electrical signals in your arm worked flawlessly for me — you can control your glasses with your hand without anyone knowing — but I wouldn’t mind if that “puck” contained a Blackberry-style keyboard for extended text entry…
…Was there any aspect of the Vision Pro going so high end that also made you re-anchor on the low end, or do you think you would’ve ended up here regardless?
AB: No, I think we would’ve ended up here regardless. I mean, listen, I love that the Vision Pro — people won’t believe me — I love that they went maximalist. Just like, “What if we just take this dial and turn it to 11, and let the rest of the system fall where it does?”, and you see why we haven’t done that, just in terms of weight and cost. Like yep, that’s what it takes to take this dial and turn it to 11.
And this is why I think you and Mark right away seemed almost relieved by the Vision Pro.
AB: Your only real fear when a competitor launches a product is that they’ve had a breakthrough that you haven’t had. That there’s something that they’ve figured out, some technical thing that you haven’t figured out, because then they have a sustaining advantage potentially for some period of time until you can beat them on it. So I think whenever a device comes out, it’s like, “Oh good, this is all made with materials that we are aware of, this is all made with technologies that we have access to”.
“We understand why it costs this much, why it weighs this much.”
AB: We could have built this, we chose not to build this. It is both great for the world that there’s people exploring different quadrants of the space. By the way, if the Vision Pro had sold really well, of course we’d be changing our strategy. We’d be like, “Oh, okay, cool, there’s actually a bigger market than we’ve realized up there, let’s go do it”. And I think, by the way, I do actually think there will be a market there, when there’s software.
Are you surprised at how little content Apple’s released with Vision Pro?
AB: It’s how do you get the content? Before you have the devices and it’s a chicken-and-egg problem where it’s like, “Hey, okay cool, you have these devices out there, but there’s not enough for me to build my content for”.
Is part of the low cost a bet that if the egg is the end market, that’s the most important part?
AB: One hundred percent. We’ve talked about this all the time, you almost always hear me talk about the Quest ecosystem. I’m not talking about the Quest line of devices, I’m talking about building as big an audience as I can for developers to target so they can sell their software, so there’s more developers, that brings more consumers, and you have flywheel that way. Then at some point, that’s how you power your way up market. That’s how you power your way to, “Hey, we can now sell higher margin, higher end devices because there’s plenty of stuff”.
Well, to that point, Mark talks about, “In every market there’s the integrated version and the modular mass market one”, but if you go back to the PCs, Microsoft swept the market. Now one thing that’s important about that era that’s different from the smartphone era is in the smartphone era, Apple was first. In the PC era, DOS was first, so Microsoft was actually first, so they actually had developers first. At this point, seeing the Vision Pro, seeing what’s happened over the last six to nine months, are you shifting from a, “Yeah, we can both be winners here”, to, “We’re going to win the whole thing”?
AB: Man, I feel good about our position, if that’s what you’re asking.
I want to pretend I’m turning off the mic and getting your honest thought.
AB: With me, you’ll always get an honest thought, I have to make sure I’m phrasing this in a clever way.
The only reason I’m being careful here is I think — I don’t really want to be antagonistic with anybody, including Apple, I think it’s great that they’re investing, I want them to continue invest. Actually the Vision Pro has caused a surge of interest in investing in the entire space, including in us. I’ve gotten calls in the last couple of months especially that I would not have gotten, had Apple not launched the Vision Pro, and if they weren’t courting people to consider that there’s going to be a follow-on version. So it’s really, really healthy to have that competition. Good for consumers, good for us.
I also think that right now, if you’re a developer, you’d be an idiot not to build for us first, we have an audience that can actually go buy your software. It’s big enough to sustain you, and then yeah, no problem, bring it over to Apple Vision Pro after that.
Is your bigger concern losing to Apple, or that a market never materializes for these devices?
AB: Oh, good question. Yeah, my biggest concern is that the market gets capped somehow, like it doesn’t take off. The thing I worry about with Apple specifically is that they have their phones and devices so locked down that they can self-preference a ton. So they can easily, you look what our Orion glasses, these full AR glasses, incredible. We’ve got custom silicon in the glasses, we’ve got custom silicon in the puck, but Apple could build all that and just be like, “Oh, it only works with us,” which they’ve already done with the AirPods.
They don’t need a puck because they have a phone.
AB: They already have a phone, and they did this with Airpods.
Or the Apple Watch.
AB: Apple Watch. Those aren’t the best possible things you could build, but no one else is allowed to build those things, so it’s like, “Oh cool”, so if I have a concern about Apple, it’s not the competitiveness or non-competitiveness of their headsets, it’s that they’re going to bundle into their ecosystem in a way that really makes it hard for us to compete…
…This is the first device I’ve ever used that — I know you guys have been saying it — that genuinely feels post-phone.
AB: It could do it, right?…
…I’ll be totally honest, after using Orion, I’m excusing you all your billions of dollars a year spent, that’s how incredible it is, but I do think one of the critiques, and you talked about it when you went in, this was an entity that had two completely different camps that want to go in totally different directions. Then even a few years after you were there, you’re having an operating system bake-off for years instead of months and then it’s, “Should we do processors? Should we partner with someone doing processors?”. What is the forcing function that is getting you into, “Okay, we’re going to stop experimenting and actually start building”? What got you to that point? Was it the Year of Efficiency? Was there a bit where, “Look, we have to lay off half the team, so we’ve got to decide which half”?
AB: I love this question. It was before the Year of Efficiency hit. I think it’s not uncommon, you have these expansionary periods where you’re like, “We don’t know what matters yet, we truly don’t know what technology is the right technology, we don’t know what operating system is the right operating system, we don’t know what trade-offs matter yet”. So if you want to be successful with high confidence in a certain timeframe, it pays to parallel path a ton of stuff.
But how long do you parallel path it?
AB: We honestly turned the corner with Quest 2, especially when we had mixed reality in sight. That started the process, and now you’ve got to a point with a mixed reality with our metaverse division where it’s extremely focused, have a very clear vision of what good looks like, have a very clear ability to discern this is the path, this is not the path. As a consequence, you can be really, really much more efficient with your resourcing, your parallel pathing list, you’re just blitzing the things that matter more.
With augmented reality, Orion, a year ago, we actually hit this point where we’re like, “Okay, we believe in this, we see it, we have a really clear sense of where we’re going with this”, and you know what really helped a lot with that was the Ray-Ban Meta glasses as well. Cool, it’s not just that we have this distant AR thing, we actually have an entire family of devices coming before that that also matter.
Did AI save Reality Labs?
AB: Oh my gosh. So AI, because FAIR, the Fundamental AI Research group reported to me until this year. We just moved it over to join the rest of the AI stuff with Chris, and I don’t know if it saved us, but it’s a wonderful tailwind, it’s the first tailwind I can remember having. For us, it’s mostly just headwind after headwind after headwinds like, “Oh, guess what? This thermal performance is worse than you thought, this battery life is worse than you thought, the efficiency is worse than you thought”, and so we finally got a tailwind. We finally got a thing that showed up before it was expected, which was AI.
So I think to answer your first question, each of these devices has gone through an expansionary period and a contractionary period where it expands until you feel like you have a good understanding and intuition of what good looks like, and then you can start to prune and then you can get really good about pruning. Today our architecture is really tight, hand tracking, eye tracking, face tracking, Codec Avatars, these are shared technologies, they work in both VR and AR, and we have a single shared team building those technologies. Separately, the operating system for AR has to be its own operating system because it turns out the use cases, what you actually do, the interaction paradigm, completely different.
2. Xi Jinping is worried about the economy – what do Chinese people think? – Kelly Ng and Yi Ma
What is less clear is how the slowdown has affected ordinary Chinese people, whose expectations and frustrations are often heavily censored.
But two new pieces of research offer some insight. The first, a survey of Chinese attitudes towards the economy, found that people were growing pessimistic and disillusioned about their prospects. The second is a record of protests, both physical and online, that noted a rise in incidents driven by economic grievances.
Although far from complete, the picture neverthless provides a rare glimpse into the current economic climate, and how Chinese people feel about their future…
…The slowdown hit as the pandemic ended, partly driven by three years of sudden and complete lockdowns, which strangled economic activity.
And that contrast between the years before and after the pandemic is evident in the research by American professors Martin Whyte of Harvard University, Scott Rozelle of Stanford University’s Center on China’s Economy and Stanford masters student Michael Alisky.
They conducted their surveys in 2004 and 2009, before Xi Jinping became China’s leader, and during his rule in 2014 and 2023. The sample sizes varied, ranging between 3,000 and 7,500.
In 2004, nearly 60% of the respondents said their families’ economic situation had improved over the past five years – and just as many of them felt optimistic about the next five years.
The figures jumped in 2009 and 2014 – with 72.4% and 76.5% respectively saying things had improved, while 68.8% and 73% were hopeful about the future.
However in 2023, only 38.8% felt life had got better for their families. And less than half – about 47% – believed things would improve over the next five years.
Meanwhile, the proportion of those who felt pessimistic about the future rose, from just 2.3% in 2004 to 16% in 2023.
While the surveys were of a nationally representative sample aged 20 to 60, getting access to a broad range of opinions is a challenge in authoritarian China.
Respondents were from 26 Chinese provinces and administrative regions. The 2023 surveys excluded Xinjiang and parts of Tibet – Mr Whyte said it was “a combination of extra costs due to remote locations and political sensitivity”…
…In 2004, 2009 and 2014, more than six in 10 respondents agreed that “effort is always rewarded” in China. Those who disagreed hovered around 15%.
Come 2023, the sentiment flipped. Only 28.3% believed that their hard work would pay off, while a third of them disagreed. The disagreement was strongest among lower-income families, who earned less than 50,000 yuan ($6,989; £5,442) a year…
…There are other indicators of discontent, such as an 18% rise in protests in the second quarter of 2024, compared with the same period last year, according to the China Dissent Monitor (CDM).
The study defines protests as any instance when people voice grievances or advance their interests in ways that are in contention with authority – this could happen physically or online. Such episodes, however small, are still telling in China, where even lone protesters are swiftly tracked down and detained.
A least three in four cases are due to economic grievances, said Kevin Slaten, one of the CDM study’s four editors.
Starting in June 2022, the group has documented nearly 6,400 such events so far.
They saw a rise in protests led by rural residents and blue-collar workers over land grabs and low wages, but also noted middle-class citizens organising because of the real estate crisis. Protests by homeowners and construction workers made up 44% of the cases across more than 370 cities…
…Between August 2023 and Janaury 2024, Beijing stopped releasing youth unemployment figures after they hit a record high. At one point, officials coined the term “slow employment” to describe those who were taking time to find a job – a separate category, they said, from the jobless.
Censors have been cracking down on any source of financial frustration – vocal online posts are promptly scrubbed, while influencers have been blocked on social media for flaunting luxurious tastes. State media has defended the bans as part of the effort to create a “civilised, healthy and harmonious” environment. More alarming perhaps are reports last week that a top economist, Zhu Hengpeng, has been detained for criticising Xi’s handling of the economy.
3. Will Hurricane Helene Cause a Chip Shortage? What the Major Chipmakers Are Saying – Tae Kim
Hurricane Helene flooded and damaged the local infrastructure in Spruce Pine, making some roadways impassable, according to local news reports. Sibelco and The Quartz Corp., the two companies that manage the quartz mines in the town, have both temporarily shut down mining operations.
High-purity quartz found in Spruce Pine is a key material used in the production of silicon wafers that are used to make semiconductors. Quartz’s ability to withstand extreme temperatures is useful for making crucibles or containers that hold the melted polysilicon material used to produce wafers and solar cells.
According to Vince Beiser, author of The World in a Grain, the two companies’ Spruce Pine mines provide 70% to 90% of the world’s production of high-purity quartz used for the semiconductor industry…
…Ed Conway, author of Material World, a book about raw materials, posted that Spruce Pine quartz mines are unique in terms of purity and consistency, and finding another high-purity source would take months or possibly years.
But in a bad scenario, where the mines are offline for months, the chip industry may be insulated. “The significance of supply disruptions from the [Spruce Pine] mines is exaggerated,” Dylan Patel, chief analyst at SemiAnalysis said.
Patel added that the raw wafer companies had months of inventory, there are other countries that have high-purity quartz mines, and there are methods to purify lower-quality quartz or create synthetic quartz crucibles.
4. The Truth Behind the Highlight Reels – Thomas Chua
People are often shocked when seemingly perfect couples announce a divorce or breakup, even though their social media showed nothing but happiness just days earlier. What’s hidden from view are the realities that unfold behind the scenes—disagreements, financial pressures, or emotional distance.
The same kind of comparison happens in investing. We look at people like Warren Buffett, who delivered an incredible 30.4% annualized return during his partnership years (1957–1969), or Peter Lynch, who achieved 29.2% annualized returns at Fidelity’s Magellan Fund (1977–1990). Their results are awe-inspiring, but we rarely consider the personal price they paid to achieve them.
Warren Buffett’s biography, The Snowball, talks about how he spent his days working and his nights poring over Moody’s Manual. While his wife, Susie, took care of him wholeheartedly and assumed the responsibility of managing their household and raising the children, Buffett’s mind remained elsewhere. Even during family trips—like a visit to Disneyland—he would sit alone, engrossed in reading.
This single-minded focus on work created a widening distance between Buffett and his family. His children longed for his attention, and Susie craved a deeper connection. The strain eventually became too much, leading to Susie’s departure…
…Buffett and Lynch’s legendary results required intense focus and commitment, often at the expense of their relationships. This is not unlike the sacrifices elite athletes make, dedicating everything to training, diet, and recovery to reach the pinnacle of their sport…
…When it comes to investing, we need to ask ourselves: What’s the price we’re willing to pay? How much time, energy, and money are we truly prepared to invest?
5. X (or Twitter) thread on China’s stimulus – Adam Wolfe
Why is China’s stock market booming if most economists, including me, don’t think the stimulus measures announced or reported go far enough to solve China’s economic problems or even its cyclical slump? I think it’s how the stimulus has been designed. 1/
The measures aimed at the real economy are mostly incremental, small, and inconsequential. But the measures that the PBoC announced to support the stock market are new, unlimited, and significant. 2/…
…Start with the 20-bps policy interest rate cut. 3/
PBoC Governor Pan was at pains to say this is as much as he could do. Rate cuts pass through to loan rates faster than deposit rates, so to keep banks profitable, he couldn’t offer any more. That also implies he won’t be cutting rates further soon. 4/…
…Existing mortgage rates were cut, too, saving some CNY150bn in interest payments per-year, according to Pan. But they would have adjusted in January anyway, so the actual savings are ¼ of that. They did the same thing last year. It had no macro impact. 7/
Lower down payment requirements for second home purchases? Done that before, too. It didn’t lead to higher sales of new homes. 8/…
…Another CNY1tn will be used to support consumption. About half of that would go toward extending the cash for clunkers programs. Those have helped specific industries but have had little macro impact. And the impact is getting smaller the longer these programs run. 11/
The only new thing for the real economy is the reported program that would give a monthly allowance to families with two more kids. I estimate that a bit over 10% of families would qualify, so it would cost about CNY500bn/year. 12/
This could have a big multiplier effect on growth, but CNY500bn is small beans. Plus, temporary support measures like this tend to be saved…
…But what about the stock market? The PBoC will set up a CNY500bn facility for institutional investors to higher risk assets for safe assets from the PBoC. This higher-quality collateral would then allow the investors to take on more leverage to buy more stocks. 14/
The PBoC will also open a CNY300bn re-lending window to encourage banks to finance the repurchase of stocks by listed companies. Pan made a point to say that both programs could be doubled or tripled if they work. The sky is the limit! 15/…
…Inflating a bubble in stock prices without doing much to boost earnings could end in tears. Alternatively, sucking liquidity out of safer assets like bonds could lead to another “redemption crisis” for WMPs/bond funds and losses for households. 19/
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 Apple, Meta Platforms, and Microsoft. Holdings are subject to change at any time.
