What We’re Reading (Week Ending 15 October 2023) - 15 Oct 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 15 October 2023):
1. The Testament of a Furniture Dealer – Ingvar Kamprad
We have decided once and for all to side with the many. What is good for our customers is also, in the long run, good for us. This is an objective that carries obligations.
All nations and societies in both the East and West spend a disproportionate amount of their resources on satisfying a minority of the population. In our line of business, for example, far too many of the fine designs and new ideas are reserved for a small circle of the affluent. That situation has influenced the formulation of our objectives…
…The many people usually have limited financial resources. It is the many people whom we aim to serve. The first rule is to maintain an extremely low level of prices. But they must be low prices with a meaning. We must not compromise either functionality or technical quality…
…The concept of a low price with a meaning makes enormous demands on all our co-workers. That includes product developers, designers, buyers, office and warehouse staff, sales people and all other cost bearers who are in a position to influence our purchase prices and all our other costs – in short, every single one of us! Without low costs, we can never accomplish our purpose…
… A job must never be just a livelihood. If you are not enthusiastic about your job, a third of your life goes to waste, and a magazine in your desk drawer can never make up for that.
For those of you who bear any kind of leadership responsibility, it is crucially important to motivate and develop your co-workers. A team spirit is a fine thing, but it requires everybody in the team to be dedicated to their tasks. You, as the captain, make the decisions after consulting the team. There is no time for argument afterwards. Take a football team as your model!
Be thankful to those who are the pillars of our society! Those simple, quiet, taken for-granted people who always are willing to lend a helping hand. They do their duty and shoulder their responsibility without being noticed. To them, a defined area of responsibility is a necessary but distasteful word. To them, the whole is just as self evident as always helping and always sharing. I call them stalwarts simply because every system needs them. They are to be found everywhere – in our warehouses, in our offices, among our sales force. They are the very embodiment of the IKEA spirit…
…Profit is a wonderful word! Let us start by stripping the word profit of its dramatic overtones. It is a word that politicians often use and abuse. Profit gives us resources. There are two ways to get resources: either through our own profit, or through subsidy. All state subsidies are paid for either out of the state’s profit on operations of some kind, or from taxes of some kind that you and I have to pay. Let us be self-reliant in the matter of building up financial resources too…
…Wasting resources is a mortal sin at IKEA. It is not all that difficult to reach set targets if you do not have to count the cost. Any designer can design a desk that will cost 5,000 kronor. But only the most highly skilled can design a good, functional desk that will cost 100 kronor.
Expensive solutions to any kind of problem are usually the work of mediocrity.
We have no respect for a solution until we know what it costs. An IKEA product without a price tag is always wrong! It is just as wrong as when a government does not tell the taxpayers what a “free” school lunch costs per portion.
Before you choose a solution, set it in relation to the cost. Only then can you fully determine its worth…
…Planning is often synonymous with bureaucracy. Planning is, of course, needed to lay out guidelines for your work and to enable a company to function in the long term. But do not forget that exaggerated planning is the most common cause of corporate death. Exaggerated planning constrains your freedom of action and leaves you less time to get things done. Complicated planning paralyses. So let simplicity and common sense guide your planning…
…If we from the start had consulted experts about whether a little community like Älmhult could support a company like IKEA, they would have undoubtedly advised against it. Nevertheless, Älmhult is now home to one of the world’s biggest operations in the home furnishings business.
By always asking why we are doing this or that, we can find new paths…
…It is no coincidence that our buyers go to a window factory for table legs and a shirt factory for cushions. It is quite simply the answer to the question “why”.
Our protest against convention is not protest for its own sake: it is a deliberate expression of our constant search for development and improvement…
…The general who divides his resources will invariably be defeated. Even a multitalented athlete has problems.
For us too, it is a matter of concentration – focusing our resources. We can never do everything, everywhere, all at the same time.
Our range cannot be allowed to overflow. We will never be able to satisfy all tastes anyway. We must concentrate on our own profile. We can never promote the whole of our range at once. We must concentrate. We cannot conquer every market at once. We must concentrate for maximum impact, often with small means…
…When we are building up a new market, we concentrate on marketing. Concentration means that at certain vital stages we are forced to neglect otherwise important aspects such as security systems…
…In our IKEA family we want to keep the focus on the individual and support each other. We all have our rights, but we also have our duties. Freedom with responsibility. Your initiative and mine are decisive.
Our ability to take responsibility and make decisions.
Only while sleeping one makes no mistakes. Making mistakes is the privilege of the active – of those who can correct their mistakes and put them right.
Our objectives require us to constantly practise making decisions and taking responsibility, to constantly overcome our fear of making mistakes. The fear of making mistakes is the root of bureaucracy and the enemy of development…
…The feeling of having finished something is an effective sleeping pill. A person who retires feeling that he has done his bit will quickly wither away. A company which feels that it has reached its goal will quickly stagnate and lose its vitality. Happiness is not reaching your goal.
Happiness is being on the way. It is our wonderful fate to be just at the beginning. In all areas. We will move ahead only by constantly asking ourselves how what we are doing today can be done better tomorrow. The positive joy of discovery must be our inspiration in the future too…
…Bear in mind that time is your most important resource. You can do so much in 10 minutes. Ten minutes, once gone, are gone for good. You can never get them back. Ten minutes are not just a sixth of your hourly pay. Ten minutes are a piece of yourself. Divide your life into 10-minute units and sacrifice as few of them as possible in meaningless activity.
2. AI reads text from ancient Herculaneum scroll for the first time – Jo Marchant
A 21-year-old computer-science student has won a global contest to read the first text inside a carbonized scroll from the ancient Roman city of Herculaneum, which had been unreadable since a volcanic eruption in AD 79 — the same one that buried nearby Pompeii. The breakthrough could open up hundreds of texts from the only intact library to survive from Greco-Roman antiquity.
Luke Farritor, who is at the University of Nebraska–Lincoln, developed a machine-learning algorithm that has detected Greek letters on several lines of the rolled-up papyrus, including πορϕυρας (porphyras), meaning ‘purple’. Farritor used subtle, small-scale differences in surface texture to train his neural network and highlight the ink…
…Hundreds of scrolls were buried by Mount Vesuvius in October AD 79, when the eruption left Herculaneum under 20 metres of volcanic ash. Early attempts to open the papyri created a mess of fragments, and scholars feared the remainder could never be unrolled or read…
…The Vesuvius Challenge offers a series of awards, leading to a main prize of US$700,000 for reading four or more passages from a rolled-up scroll. On 12 October, the organizers announced that Farritor has won the ‘first letters’ prize of $40,000 for reading more than 10 characters in a 4-square-centimetre area of papyrus. Youssef Nader, a graduate student at the Free University of Berlin, is awarded $10,000 for coming second…
…Most classical texts known today are the result of repeated copying by scribes over centuries. By contrast, the Herculaneum library contains works not known from any other sources, direct from the authors.
Until now, researchers were able to study only opened fragments…
… But more than 600 scrolls — most held in the National Library in Naples, with a handful in the United Kingdom and France — remain intact and unopened. And more papyri could still be found on lower floors of the villa, which have yet to be excavated.
Seales and his team spent years developing methods to “virtually unwrap” the vanishingly thin layers using X-ray computed tomography (CT) scans, and to visualize them as a series of flat images. In 2016, he reported1 using the technique to read a charred scroll from En-Gedi in Israel, revealing sections of the Book of Leviticus — part of the Jewish Torah and the Christian Old Testament — written in the third or fourth century AD. But the ink on the En-Gedi scroll contains metal, so it glows brightly on the CT scans. The ink on the older Herculaneum scrolls is carbon-based, essentially charcoal and water, with the same density in scans as the papyrus it sits on, so it doesn’t show up at all.
Seales realized that even with no difference in brightness, CT scans might capture tiny differences in texture that can distinguish areas of papyrus coated with ink. To prove it, he trained an artificial neural network to read letters in X-ray images of opened Herculaneum fragments. Then, in 2019, he carried two intact scrolls from the Institut de France in Paris to the Diamond Light Source, a synchrotron X-ray facility near Oxford, UK, to scan them at the highest resolution yet (4–8 micrometres per 3D image element, or voxel).
Reading intact scrolls was still a huge task, however, so the team released all of its scans and code to the public and launched the Vesuvius Challenge…
…In parallel, Seales’ team worked on the virtual unwrapping, releasing images of the flattened pieces for the contestants to analyse. A key moment came in late June, when one competitor pointed out that on some images, ink was occasionally visible to the naked eye, as a subtle texture that was soon dubbed ‘crackle’. Farritor immediately focused on the crackle, looking for further hints of letters.
One evening in August, he was at a party when he received an alert that a fresh segment had been released, with particularly prominent crackle. Connecting through his phone, he ran his algorithm on the new image. Walking home an hour later, he pulled out his phone and saw five letters on the screen. “I was jumping up and down,” he says. “Oh my goodness, this is actually going to work.” From there, it took just days to refine the model and identify the ten letters required for the prize…
…The word “purple” has not yet been read in the opened Herculaneum scrolls. Purple dye was highly sought-after in ancient Rome and was made from the glands of sea snails, so the term could refer to purple colour, robes, the rank of people who could afford the dye or even the molluscs. But more important than the individual word is reading anything at all, says Nicolardi. The advance “gives us potentially the possibility to recover the text of a whole scroll”, including the title and author, so that works can be identified and dated…
…artificial intelligence (AI) is increasingly aiding the study of ancient texts. Last year, for example, Assael and Sommerschield released an AI tool called Ithaca, designed to help scholars glean the date and origins of unidentified ancient Greek inscriptions, and make suggestions for text to fill any gaps2. It now receives hundreds of queries per week, and similar efforts are being applied to languages from Korean to Akkadian, which was used in ancient Mesopotamia.
Seales hopes machine learning will open up what he calls the “invisible library”. This refers to texts that are physically present, but no one can see, including parchment used in medieval book bindings; palimpsests, in which later writing obscures a layer beneath; and cartonnage, in which scraps of old papyrus were used to make ancient Egyptian mummy cases and masks.
3. The Problem With Counterfeit People – Daniel C. Dennett
Today, for the first time in history, thanks to artificial intelligence, it is possible for anybody to make counterfeit people who can pass for real in many of the new digital environments we have created. These counterfeit people are the most dangerous artifacts in human history, capable of destroying not just economies but human freedom itself. Before it’s too late (it may well be too late already) we must outlaw both the creation of counterfeit people and the “passing along” of counterfeit people. The penalties for either offense should be extremely severe, given that civilization itself is at risk…
…Our natural inclination to treat anything that seems to talk sensibly with us as a person—adopting what I have called the “intentional stance”—turns out to be easy to invoke and almost impossible to resist, even for experts. We’re all going to be sitting ducks in the immediate future.
The philosopher and historian Yuval Noah Harari, writing in The Economist in April, ended his timely warning about AI’s imminent threat to human civilization with these words:
“This text has been generated by a human. Or has it?”
It will soon be next to impossible to tell. And even if (for the time being) we are able to teach one another reliable methods of exposing counterfeit people, the cost of such deepfakes to human trust will be enormous. How will you respond to having your friends and family probe you with gotcha questions every time you try to converse with them online?
Creating counterfeit digital people risks destroying our civilization. Democracy depends on the informed (not misinformed) consent of the governed. By allowing the most economically and politically powerful people, corporations, and governments to control our attention, these systems will control us. Counterfeit people, by distracting and confusing us and by exploiting our most irresistible fears and anxieties, will lead us into temptation and, from there, into acquiescing to our own subjugation…
… The key design innovation in the technology that makes losing control of these systems a real possibility is that, unlike nuclear bombs, these weapons can reproduce. Evolution is not restricted to living organisms, as Richard Dawkins demonstrated in 1976 in The Selfish Gene. Counterfeit people are already beginning to manipulate us into midwiving their progeny. They will learn from one another, and those that are the smartest, the fittest, will not just survive; they will multiply…
…As Harari says, we must “make it mandatory for AI to disclose that it is an AI.” How could we do that? By adopting a high-tech “watermark” system like the EURion Constellation, which now protects most of the world’s currencies. The system, though not foolproof, is exceedingly difficult and costly to overpower—not worth the effort, for almost all agents, even governments. Computer scientists similarly have the capacity to create almost indelible patterns that will scream FAKE! under almost all conditions—so long as the manufacturers of cellphones, computers, digital TVs, and other devices cooperate by installing the software that will interrupt any fake messages with a warning…
…Did you know that the manufacturers of scanners have already installed software that responds to the EURion Constellation (or other watermarks) by interrupting any attempt to scan or photocopy legal currency? Creating new laws along these lines will require cooperation from the major participants, but they can be incentivized…
…It will be difficult—maybe impossible—to clean up the pollution of our media of communication that has already occurred, thanks to the arms race of algorithms that is spreading infection at an alarming rate. Another pandemic is coming, this time attacking the fragile control systems in our brains—namely, our capacity to reason with one another—that we have used so effectively to keep ourselves relatively safe in recent centuries.
4. The New Kings of Wall Street Aren’t Banks. Private Funds Fuel Corporate America – Matt Wirz
High interest rates, driven by the Federal Reserve’s higher-for-longer policy, are shaking up how corporate loans get done. Soaring rates brought down banks such as Credit Suisse and Silicon Valley Bank and forced others to reduce lending. As those lenders stepped back, private-credit fund managers stepped up, financing one jumbo loan for American corporations after another.
This shift is accelerating a trend more than a decade in the making. Hedge funds, private-equity funds and other alternative-investment firms have been siphoning away money and talent from banks since a regulatory crackdown after the 2008-09 financial crisis. Lately, many on Wall Street say the balance of power—and risk—has hit a tipping point…
… The loans are expensive, but for many companies they are the only option. Next, private-credit firms are coming for the rest of the credit market, bankrolling asset-backed debt for real estate, consumer loans and infrastructure projects.
Private-equity firms use revenue from most of the loans to make leveraged buyouts, saddling the companies they acquire with expensive debt. Ultimately, more companies could end up under their control.
Regulators, concerned that so much money is going behind closed doors, are rushing to catch up with new rules for private fund managers and their dealings with the insurance industry.
The firms have money to spend from clients such as pensions, insurers and, increasingly, individuals. Those investors piled in because returns were high compared with other debt investments in a low-yield world. Private lenders delivered average returns of 9% over the past decade on loans made mostly to midsize businesses, according to data provider Cliffwater…
…Some analysts are concerned about private credit taking over the loan market.
The shift “has concentrated a larger segment of economic activity into the hands of a fairly small number of large, opaque asset managers,” credit-ratings firm Moody’s Investors Service said in a September report. “Lack of visibility will make it difficult to see where risk bubbles may be building.”
There are risks to investors, too. High interest rates are making corporate borrowers more likely to default on the loans. Some managers are concentrating their exposure by making bigger loans backing multibillion-dollar deals…
…If private lenders keep refinancing debt from large companies that struggle to borrow in the bank market, that could also lower the average quality of their investments. About half of the $190 billion of below-investment-grade bank loans coming due in 2024 and 2025 are rated B-minus or below.
Private-credit assets under management globally rose to about $1.5 trillion in 2022 from $726 billion in 2018, according to data provider Preqin.
A handful of the fund managers control about $1 trillion combined, according to research by The Wall Street Journal…
…“It’s kind of nuts that there used to be just three or four of these [lenders] out there and now you can have 30,” said Erwin Mock, head of capital markets for Thoma Bravo, the private-equity firm that owns Hyland and negotiated its new loan.
Companies are using private debt to retire bank debt at unprecedented levels. Financial software maker Finastra borrowed $4.8 billion from Blue Owl, Oak Hill Advisors and others in August to refinance a loan arranged by Morgan Stanley. It was the largest private loan on record.
Asset managers are able to handle these monster loans, the size previously reserved for banks, because the firms are tapping deeper pools of capital.
Apollo, KKR and others have built, purchased or partnered with insurance companies that have hundreds of billions of dollars they need to invest. Much of the insurance money must go into investment-grade debt, so the firms are branching into asset-backed debt that is higher rated than most corporate loans…
… Private-credit funds don’t require borrowers to get credit ratings, and they guarantee completion of buyout loans. Banks, meanwhile, might back out when markets turned rocky. But private-credit loans have tougher covenants, prohibiting borrowers from selling assets or raising new debt to get cash. Private loans also charged average interest rates 5 percentage points higher than comparable debt in the bank market over the past 10 years, according to an index operated by Cliffwater.
Private-credit investors may fare better than bank-loan holders in the long term because of their better covenants, Goldman Sachs analysts wrote in a September research report. They are also owned by just a few lenders. That enables private creditors to intervene faster in times of financial stress and to recover more if a borrower defaults, the analysts said…
…“Investors wanted yield, and the government wanted credit risk away from the taxpayer,” said Joshua Easterly, co-president of Sixth Street, a private-credit firm he co-founded with other Goldman Sachs veterans. “That created the environment for this market to mature.”
Private credit shot ahead in the pandemic when crisis-struck banks froze up, stoking worries of mass defaults. Credit-ratings firms quickly downgraded dozens of companies—something they were criticized for not doing fast enough in 2008—making it even harder for the borrowers to get new bank debt.
The cycle intensified starting last year when the Fed tightened monetary policy and banks pulled back further. Interest rates on bank loans are normally much cheaper than the rates on private credit, but the difference between the two has shrunk to levels not seen since 2008. That makes bank loans less enticing—relatively, anyway.
5. The Israeli-Palestinian conflict: A chronology – Sammy Westfall, Brian Murphy, Adam Taylor, Bryan Pietsch and Andrea Salcedo
The roots of the conflict and mistrust are deep and complex, predating the establishment of the state of Israel in 1948. Both Palestinians and Israelis see the territory between the Jordan River and the Mediterranean Sea as their own, and Christians, Jews and Muslims all hold parts of the land as sacred…
…The Ottoman Empire had controlled that part of the Middle East from the early 16th century until control of most of the region was granted to the British after World War I.
Both Israelis and Palestinians were struggling for self-determination and sovereignty over the territory, developing respective movements for their causes.
As World War I began, several controversial diplomatic efforts — some contradicting each other — by the Great Powers tried to shape the map of the modern Middle East, including the Palestinian territories. Palestinians cite a series of letters in 1915 to 1916 between Mecca’s emir and the British high commissioner in Egypt, known as the McMahon-Hussein Correspondence, as outlining a promise of an independent Arab state.
In 1916, the Sykes-Picot Agreement secretly negotiated between Britain and France planned to carve up the Middle East into spheres of influence, and determined that the land in question was to be internationalized.
In 1917, Britain’s foreign secretary, Lord Arthur Balfour, expressed his government’s support for “the establishment in Palestine of a national home for the Jewish people” in a letter to Baron Walter Rothschild, the head of the British wing of the influential European Jewish banking family.
To Israelis, the missive marks a formal utterance of the Israeli state’s right to exist; to Palestinians, it was an early sign of their dispossession. The declaration also noted that it was “clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine,” nodding to the overwhelming majority Arab population in the region at the time. (About 90 percent of the population was Muslim in 1850, and about 80 percent in 1914.)
Large-scale Jewish immigration followed in succeeding decades, including during Nazi persecution and the Holocaust. Both sides continued to assert their right to establish a state.
After World War II, nearing the end of the British Mandate for Palestine, the United Nations General Assembly in 1947 passes Resolution 181, urging the partition of the land into two independent states — one Arab and one Jewish. Religiously significant Jerusalem is to be under special international administration. The plan is not implemented after the Arab side rejects it, arguing that it is unfavorable to their majority population. Violence in the regional conflict grows.
Israel declares independence in May 1948. The next day, a coalition of Arab states, allied with Palestinian factions, attack Israeli forces in what becomes the first of several Arab-Israeli wars. In the end, Israel gains control of an even larger portion of territory — not including the areas of the West Bank and Gaza Strip. An estimated 700,000 Palestinians flee or are driven from their land in what Palestinians refer to as the “Nakba,” or “catastrophe” in Arabic.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. We currently have no vested interest in any companies mentioned. Holdings are subject to change at any time.
