What We’re Reading (Week Ending 2 August 2020) - 02 Aug 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.” Jeremy and myself 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 02 August 2020):
1. The Ugly Scramble – Morgan Housel
There is no topic in business and investing that gets more attention than risk. But it’s almost always viewed through a universal lens: “What risks are we going to face in the future?” Or just simply, “What’s the economy going to do next?”
But risk has little to do with what’s going to happen next and a lot to do with how much you can endure, and how calmly you can react to, whatever happens next.
To the leveraged investor a small setback is a huge risk because of how they’re forced to deal with decline: by selling to cover their debts, right now, this moment, whatever the price is. Don’t think, just scramble to do you gotta do in the face of panic. They’re like the cat locking its limbs into place, doing whatever they can to survive even if it breaks them to pieces.
To the patient investor with a ton of cash, a huge market decline requires no immediate action. And not because it doesn’t affect them – it often does – but because however it affects them can be dealt with slowly and methodically. Maybe they realize they want a more conservative allocation. They can come to that conclusion after thinking it through, hearing opposing views, weighing alternatives, and calmly executing at the right time. Doing so may lead them to a different choice than their initial gut reaction. Taking time to understand a complicated problem often does.
2. Everyone’s a Day Trader Now – Michael Wursthorn, Mischa Frankl-Duval, and Gregory Zuckerman
Much of the rapid-fire day trading culture plays out on social media, which has helped usher in a new class of social-media influencers who hype stocks to followers eager for get-rich-quick stock tips. They swap trading ideas over Twitter, Discord and Reddit, an update from the boiler-room chat rooms of the ’90s that sent dot-com stocks into a frenzy.
Stanley Barsch, Ms. Viswasam’s boss who got her into investing, touts the stocks he trades to his more than 76,000 Twitter followers, who refer to him by his handle, StanTheTradingMan. He also hosts his own Discord channel, where a tighter-knit group of day traders circulate unconfirmed rumors as potential catalysts for big gains.
Mr. Barsch, 42, is a former police officer turned real-estate broker, who said he had been making a steady six figures since 2010. Now, he boasts of how he says he turned the $20,000 he put into the market in January and February into more than $450,000 as of mid-July without any prior trading experience.
3. Statement by Jeff Bezos to the U.S. House Committee on the Judiciary – Jeff Bezos
In my view, obsessive customer focus is by far the best way to achieve and maintain Day One vitality. Why? Because customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and a constant desire to delight customers drives us to constantly invent on their behalf. As a result, by focusing obsessively on customers, we are internally driven to improve our services, add benefits and features, invent new products, lower prices, and speed up shipping times—before we have to. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it. And I could give you many such examples. Not every business takes this customer-first approach, but we do, and it’s our greatest strength.
Customer trust is hard to win and easy to lose. When you let customers make your business what it is, then they will be loyal to you—right up to the second that someone else offers them better service. We know that customers are perceptive and smart. We take as an article of faith that customers will notice when we work hard to do the right thing, and that by doing so again and again, we will earn trust. You earn trust slowly, over time, by doing hard things well—delivering on time; offering everyday low prices; making promises and keeping them; making principled decisions, even when they’re unpopular; and giving customers more time to spend with their families by inventing more convenient ways of shopping, reading, and automating their homes. As I have said since my first shareholder letter in 1997, we make decisions based on the long-term value we create as we invent to meet customer needs. When we’re criticized for those choices, we listen and look at ourselves in the mirror. When we think our critics are right, we change. When we make mistakes, we apologize. But when you look in the mirror, assess the criticism, and still believe you’re doing the right thing, no force in the world should be able to move you.
4. Earth’s Asteroid Impact Rate Took A Sudden Jump 290 Million Years Ago – Phil Plait
We know that there’s a lack of old craters on the Earth, and it’s always been assumed that’s due to erosion. Wind, water, geologic activity: Over long stretches of time our Earth remakes itself, scrubbing the surface of blemishes like impacts*.
But the evidence for this is lacking. That’s what initially motivated the scientists, to try to see if there’s a way to support this idea. So they looked to the Moon. Our satellite is in the same region of space we are, so should get hit at very close to the same rate as Earth does. The idea is to look at big craters on the Moon, figure out a way to get their ages, do the same on Earth, then compare the two and see what you find.
The problem is getting the lunar crater ages, since very few have absolute ages found for them. But they came up with a clever idea. In a big impact, one that leaves a crater 10 kilometers across or wider, rocks from the lunar bedrock get ejected from the explosion and deposited around the crater. Over long periods of time these erode. Not due to air or water, of course, since the Moon doesn’t have those.
Instead, they erode from tiny micrometeorites raining down constantly. These sandblast the rocks, slowly wearing them away (this doesn’t happen on Earth because our atmosphere stops them). Also, the temperature change from day to night on the Moon is hundreds of degrees Celsius. The rocks are constantly expanding and contracting from this, which causes them to crack and erode.
They figured that by looking at the abundance of rocks around a crater compared to the fine powdery eroded rock material (called regolith), they can get a relative age; craters with more intact rocks are younger, and ones with more eroded ones are older.
5. Bill Gates says 3 coronavirus treatments being tested now ‘could cut the death rate dramatically.’ They may be available within months. – Hilary Brueck
“The very first vaccine won’t be like a lot of vaccines, where it’s a 100% transmission-blocking and 100% avoids the person who gets the vaccine getting sick,” the billionaire philanthropist told Insider.
Vaccine trials take months, they don’t have to create completely effective inoculations, and they won’t help protect people who are already sick.
That’s why Gates is more excited, in the immediate term, about coronavirus therapeutics.
6. How a power-hungry CEO drained the light out of General Electric – Mary Kay Linge
For years, GE’s profits had been a mirage built on whirlwind mergers and accounting sleight of hand. The funds that had been doled out to shareholders as fat dividends — and had covered its managers’ lavish perks and pay — had largely been borrowed on the strength of the company’s golden credit.
The book’s authors paint a damning portrait of Immelt’s 16 years at the helm of GE, where a rubber-stamp board of directors allowed him to hemorrhage money almost unchecked…
… At the same time, GE’s established divisions were expected to meet earnings goals far removed from reality. “Under Immelt, the company believed that the will to hit a target could supersede the math,” Gryta and Mann report.
It was a recipe for a disaster. Up-and-coming middle managers knew that a missed goal could stymie their climb up GE’s ladder; division heads “didn’t necessarily know how his underlings got to the finish line and it didn’t really matter,” the authors write.
Those toxic incentives drove the debacle that Flannery uncovered at GE Power. The division made its money not on the generators and turbines it built, but on the service contracts it sold to maintain the machines.
All a manager had to do was tweak the future cost estimates on those decades-long contracts to jack up profits as needed — and to paper over real losses from unsold inventory and declining demand.
7. Tweet storm from an executive who worked with Jeff Bezos to launch the Kindle – Dan Rose
Ignore the “institutional no”. Amazon’s core retail business was pummeled after dot-com crash, and we were still pulling out of the tail spin in 2004 when Jeff started the Kindle team (same year he started AWS team). Everyone told him it was a distraction, he ignored them.
Cannibalize yourself. Steve Kessel was running Amazon’s media business in 2004 (books/music/DVD’s). Books alone generated more than 50% of Amazon’s cash flow. Jeff fired Steve from his job and reassigned him to build Kindle. Steve’s new mission: destroy his old business…
… Make magic. Syncing over WiFi without cables was innovative, and our team was proud of it. But Jeff didn’t think it was magical enough. He insisted on syncing over cellular, and he didn’t want to charge the customer for data. We told him it couldn’t be done, he did it anyway.
