What We’re Reading (Week Ending 18 October 2020) - 18 Oct 2020
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 October 2020):
1. China’s National Digital Currency DCEP / CBDC Overview – Michael @ Box Mining
China’s national digital currency DCEP (Digital Currency Electronic Payment, DC/EP) will be built with Blockchain and Cryptographic technology. This revolutionary cryptocurrency could become the world’s first Central Bank Digital Currency (CBDC) as it is issued by state bank People’s Bank of China (PBoC). The goal and objectives of the currency are to increase the circulation of the RMB and international reach – with eventual hopes that the RMB will a global currency like the US Dollar. China has recently established an initiative to push forward Blockchain adoption, with the goal of beating competitors like Facebook Libra – a currency that Facebook CEO Mark Zuckerberg claims will become the next big FinTech innovation. China has made explicit that Facebook Libra poses a threat to the sovereignty of China, insisting that digital currencies should only be issued by governments and central banks. DCEP is not listed on cryptocurrency exchanges and will not be for speculation of value.
2. Meet Amazon.com’s first employee: Shel Kaphan – John Cook
“I mean, nobody at the beginning had any clue how big Amazon could become,” recalls Kaphan, now 58. “Nobody. Certainly not Jeff. I have spreadsheets of his projections from when he was trying to hire me. And I don’t remember the specific numbers, but it was a lot, lot smaller than it turned out to be.”…
…So, you are kind of the forgotten founder? Most people think of Jeff Bezos as the creator of the company. “In fact, to be completely technically true about it, he is the founder. But I was talking to him about joining him on the venture before the company was incorporated. He basically was just arriving from the East Coast and setting up his house when I moved up from California. All that existed of Amazon was on paper at that point. Jeff was working on it full-time already, and his wife, Mackenzie, was writing checks every once in a while. But that was it. I didn’t get founder’s stock. It didn’t seem worth the argument at the time, although I kind of felt like, well, you know, I mean I was there at the beginning. And it was all going to work out the same way, one way or the other, regardless of the technicalities. And it just didn’t seem like something that I wanted to make a big deal about at the time.”…
…What was that era like just before you joined Amazon in 1994? “The previous job I had was with Kaleida Labs, which was an Apple-IBM joint venture that called itself a startup but really wasn’t. I left that in the Spring of 1994. I lived in Santa Cruz, California, and that was at the time when there was a huge amount of ferment in the air with Netscape hiring up all of the hot-shot programmers around…. There wasn’t really much else going on at that time, but there was quite a bit of buzz about the Web, so my friend and I were thinking that we should do something about this, it is a big opportunity. I had been working in computers since the mid-70s and had sort of seen the first wave of the PC revolution come, and I didn’t jump on that. At the time, I was more enamored of what we then thought of as bigger machines, the kind of machines that the universities had. I was interested in the type of software that could run on those. I watched as the first PC wave happened and got bigger and bigger and bigger, and at some point I realized: ‘Oh, I kind of missed getting on that wave.’ So, I always had in the back of mind, if I see something that I want to be participate in coming, next time, I am going to act on it. A lot of time went by before I had that feeling again.’…
3. In April 2014, GDP in Nigeria Jumped 89%. How the Hell Did That Happen? – Morten Jerven
Yemi Kale, the director of the Nigerian National Bureau of Statistics took the podium, and announced that the Bureau had revised their GDP figures. The base year for the national accounts was updated, and the new figures showed that Nigerian GDP was 89 percent higher than previously estimated. Given the relative size of the Nigerian economy for the region, this was quite a revision. That afternoon, Sub Saharan African GDP increased almost 30 percent. Economic activity equivalent to 58 times the size of the Malawian economy was added to the Nigerian economy…
…The advantage of coming at the problem of economic statistics as an Economic Historian is that one is keenly aware that the statistics are not given, they are made. That means that statistics are social and political products. In mainstream economic debates the biggest part of the discussion is focused on what drives inflation, and why employment is up or down. Meanwhile less attention is given to the very basic problem that while we know what employment and inflation are in theory, it is technically impossible to measure it cleanly.
The notion that we scientists can let the data or the evidence speak for itself is misleading. Skilled journalists, historians and lawyers interrogate witnesses and sources to figure who made the observation, and the biases behind what they observed. And in our own way,, economists and finance writers have to interrogate these soft numbers that we too often treat as hard facts.
4. Would Keynes Have Been Fired as a Money Manager Today? – Ben Carlson
Now back to the question of whether or not Keynes would have been fired by investors today if he showed similar performance, volatility and drawdown numbers. Unfortunately, I agree with the responses from Twitter in this instance, which is a shame. This is a legendary investment record during one of the most difficult periods in history to be an investor.
But short-termism and status quo are so widely practiced in the institutionalized world of investing that it’s highly unlikely that investors would have the requisite patience to stick with someone like Keynes today. Investors would certainly chase performance after the string of good years, but very few would be able to earn the overall outperformance figures.
For most investors the goal shouldn’t necessarily be to beat the market, but to not beat themselves. And then there’s the question of actually discovering the next John Maynard Keynes. But putting all of that aside for the moment — there is an unbelievable amount of time, effort and money spent on the singular goal of beating the market. It’s the entire reason many fund managers exist. Yet the conundrum is that there are very few investors out there with the correct level of patience or discipline to see through the type of strategy that’s required to actually beat the market by a wide margin.
5. 11 Lessons From 11 Years of Investing in the Stock Market – Sudhan P
In August 2011, I saw the first major stock market decline since I started investing.
The fall was due to uncertainty in the US over its debt ceiling and the country’s first-ever credit downgrade by S&P. There was also a debt crisis in Europe.
Out of fear that some of the paper gains in my portfolio will turn to losses, I decided to sell off some of my stocks.
It was an emotionally-draining mistake as it made me check on the stock market and stock prices every day, afraid that I would miss on the rebound when it happens.
What actually happened was that the stock market started rallying on optimism that the debt crisis will be solved eventually. And I was forced to buy back the shares at a higher price.
I learnt from this episode not to time the market as it’s a really tough job. No one can know for sure when to exit the market before a crash and when precisely to buy just before a market upturn.
Various studies have also shown that being out of the market and missing the best market days can significantly reduce long-term returns. So, it’s far better to stay the course.
6. Twitter thread on every US president’s comments on money – Anand Chokkavelu
6. John Quincy Adams
“My wants are many, and, if told, would muster many a score; and were each wish a mint of gold, I still would want for more.”
12. Zachary Taylor
“Economy I consider a virtue and should be practiced by all; there is certainly no way in which money can be laid out than in the education of children.”
13. Millard Fillmore
“It is a national disgrace that our Presidents, after having occupied the highest position in the country, should be cast adrift, and, perhaps, be compelled to keep a corner grocery for subsistence.”
20. James Garfield
“He who controls the money supply of a nation controls the nation.”
23. Benjamin Harrison
“I pity that man who wants a coat so cheap that the man or woman who produces the cloth shall starve in the process.”
26. Theodore Roosevelt
“It is a bad thing for a nation to raise and to admire a false standard of success; and there can be no falser standard than that set by the deification of material well-being in and for itself.”
32. Franklin D. Roosevelt
“It is an unfortunate human failing that a full pocketbook often groans more loudly than an empty stomach.”
33. Harry S. Truman
“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”
35. John F. Kennedy
See also inflation.
“There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”
44. Barack Obama
“Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may make you feel like you’re flying high at first, but it won’t take long before you feel the impact.”
45. Donald Trump
“Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game.”
Bonus: Joe Biden
“My father used to have an expression. He’d say, ‘Joey, a job is about a lot more than a paycheck. It’s about your dignity. It’s about respect. It’s about your place in your community.'”
7. The 7 Things That Matter For Markets Going Forward – Ben Carlson
Fiscal stimulus. The debt-to-GDP for the United States is a sight to behold:
We were able to perform an experiment in government spending during a crisis in real-time and it has been a resounding success. Retail sales quickly rebounded. The unemployment rate fell. Personal savings rates went through the roof. People were able to repair their personal balance sheets.
And a depression was stopped in its tracks.
I have more questions than answers:
- Will we see this type of government spending during future recessions?
- How would that impact the business cycle?
- Will this change how business owners and investors view risk?
- Will investors and markets respond differently to future recessions?
- Was this year the first step towards a universal basic income?
Politicians have been promising their policies would lead to higher GDP growth for years. None of them have worked. Now they’ve finally found the lever to pull that can conjure growth out of thin air — government spending.
How could any sane politician not use that lever every chance they get going forward?…
…The Fed. In every alien horror movie there always comes a point when the people being hunted by said alien come to realize it’s somehow getting stronger and/or smarter.
The main character of the movie, who typically covered in sweat, mud or blood will say, “It’s evolving.”
The Fed is the alien in this example.
In 2008 the entire financial system was closer to the precipice of collapse than most people realize. Looking back on it now I’m guessing Fed officials regret not going bigger or moving faster.
Jerome Powell and company didn’t want to have that same regret this time around. The Fed met the pandemic with bazookas blazing. They poured trillions of dollars into the system to keep markets functioning, effectively taking the Great Depression scenario off the table.
Markets rebounded across the board in record time.
It’s going to be difficult for the Fed to retract its alien tentacles from the markets. And if investors come to expect the Fed to have their back during every downturn there cold be some misplaced expectations and risk-taking because of it.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation.
