What We’re Reading (Week Ending 20 August 2023) - 20 Aug 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 20 August 2023):
1. TIP569: An Investor’s Guide To Clear Thinking w/ Chris Mayer – Clay Finck and Chris Mayer
[00:18:10] Clay Finck: And I think about how a lot of times people will attach a label to something, and when I relate this to investing, someone might think they’re a growth investor, they want higher growth, and when they see that a stock is like a value stock, then they’ll just like not even look at it and not even understand what it is.
[00:18:28] Clay Finck: And I think about how some of your holdings. Are in what some people might call unattractive industries. I just think about how you dug underneath the surface and just because it might be in what people call an unattractive industry, it still can be a very attractive long-term business.
[00:18:45] Chris Mayer: Absolutely, and this has happened to me multiple times. I know that I have old Dominion Freight lines in the portfolio. It’s this trucking company and most people trucking, look at it. It’s an unattractive industry. Why would you want to be involved in that? It’s lots of competition by then. You get into Old Dominion and you see that it’s return on invested capital is huge and it’s got this deep competitive advantage, over everyone else, and it’s been taking market share, doubles market share over the last decade.
[00:19:11] Chris Mayer: And then you see. In terms of results, it’s, it would be silly to just say I don’t own trucking companies because the economic to that are not something you expect to see. It’s a real outlier, even within its own industry, and I’ve had that before too. I never had too much success with retail or retail stocks and retail.
[00:19:28] Chris Mayer: But I own Dino Polska, which is Polish Grocery Store. And again, that’s getting beyond just its category and looking at the underlying economics, which is phenomenal for that business. And it made me want to look further. And so ultimately it’s been a very successful investment so far. So again real-world consequences for taking these labels at face value and in your, if your willingness to dig behind them can lead to some real insights.
[00:19:51] Chris Mayer: It seems really obvious. Sometimes when I talk about general semantics to people, they’ll be like, yeah it just seems so obvious, but it’s not the way people behave. They behave exactly like we’re talking about. They’re taking the label at face value and they’re allowing it to do their thinking for them.
[00:20:05] Chris Mayer: They’re not looking beyond it. Not looking behind it, and it’s lots of examples. We’ve talked already about a bunch.
[00:20:12] Clay Finck: You also caution against confusing correlation with causation. Don’t fight the Fed is a phrase that gets thrown around a lot. And you’re right. Whenever you see an if x then Y statement, then you should distrust it.
[00:20:27] Clay Finck: And when I think about what drives stock market returns, I tend to think about sustainable growth. And free cash flows will ultimately drive long-term shareholder returns. And this book really makes me. Question a lot of my assumptions. So I want to just turn that question to you and have you talk about what you believe drives long-term stock returns.
[00:20:50] Chris Mayer: I’ll answer that, but first I’ll go back a little bit and on the if then the problem is that, and finance people do this all the time, is they want to just change one variable. So they’ll say okay, if interest rates go up, then the stops are going to go down because oh raises everyone, discount rate and the cash flows were discounted.
[00:21:09] Chris Mayer: Cash flows now at this higher rate and asset values will fall. The problem is, of course, in the real world, You can never just change one variable. There’s like all these other things that change at the same time. The underlying cash flows change. Expectations change. All kinds of things change. And so you can have a result that then is then surprising.
[00:21:26] Chris Mayer: So here we’ve had a period of time where the Fed has increased rates at a faster clip than ever has in the markets ripping. And there are lots of examples in the past where if you had known ahead of time what some outcome was going to be, you would still be wrong on the investment side. So one of my favorites in the book, ’cause I think I got this from Michael O.
[00:21:42] Chris Mayer: Higgins, pointed out and he had an example where even if you knew the price of gold more than doubled over some period of time. You thought to yourself, that’s pretty good. Logically I’m going to buy the largest gold miner Newmont. And then if you roll forward, Newmont’s stock actually fell 5% during that time again, ’cause it wasn’t just one variable to change.
[00:22:00] Chris Mayer: Newmont has costs that went up a lot. There are other factors in the business expectations involved. So you had a dramatically different outcome than you would’ve thought based on the initial conclusion. So that’s why you have to distrust any if then if X happens, then Y And when it comes to market.
[00:22:16] Chris Mayer: Because there are so many other things going involved going on. So when it comes to, you know what drives long-term returns, I think it helps just to get down to really basic stuff. So a business, you think of it as a pile of capital. And what rate can it increase that capital over the next 10 years that’s the fundamentals that drive returns.
[00:22:36] Chris Mayer: So it’s some kind of return on invested capital plus growth rate over time that really drives returns. What return you may get is also a function of the price that you pay. So in those three things, you know you have everything. And mathematically it can’t work out any other way. One of those three things has to lead to returns now.
[00:22:54] Chris Mayer: Being able to forecast or figure out what return on invested capital’s going to be over the next years and what’s the growth rate going to be and what kind of valuation going to be, that’s probably impossible to know. We’re all making the best guesses and what we can, based on our research and digging into why certain businesses are able to generate such returns and that’s what we do.
[00:23:16] Clay Finck: You’re a big believer in’s. Sarnoff wrote that the price of stock varies inversely with the thickness of its research file, and the fattest files are found in stocks that are the most troublesome and will decline the furthest. The thinnest files are reserved for those that appreciate the most. In short, I sort of see this as the best idea.
[00:23:38] Clay Finck: They really stand out to you and they don’t require extraordinary levels of research to build that conviction. And I think this points to what you mentioned there, you want us to find the essential elements of what’s going to lead to this business’s success and then understand the factors that play into that.
[00:23:56] Clay Finck: And you filter out. About everything else. In a way, it’s drastically simplifying the extremely complex world around us, which is really liberating to do as an investor. So I’d love for you to talk more about Sosnoff’s law.
[00:24:12] Chris Mayer: That’s beautifully put there, Clay. That’s good. That, that’s exactly it. You hit it right on its nose.
[00:24:17] Chris Mayer: I spent a lot of time trying to figure out what kind of essential things to know about a business that’s usually less than a handful of things. Really key the really important things. And then the rest of it are details that are not that important in the long term, although they could, might be important in the short term.
[00:24:33] Chris Mayer: It might have big impacts in particular quarters or whatever, but, Long term, they don’t matter much. So I spent a lot of time on that. When it comes to sauce, I was always a he-wrote a book called Humble on Wall Street, and I think it came out in the seventies. So the thickness of the research file is something that doesn’t hold up as well over time, but we get the metaphor.
[00:24:52] Chris Mayer: And he was big on a couple of things I learned from him. One was he really emphasized the skin and the game aspect, but also I liked Sosnoff’s law because it jives with my experience as well. When you’re really laboring over an idea and you have to rely on detailed spreadsheets and assumptions to justify it, it’s probably not a good idea.
[00:25:10] Chris Mayer: The ones that are really great are the ones that just jump out at you, and you’re just really excited and it seems obvious. I mean that again, it jives with my own experience. Some of the in best investments I’ve made have had very short I write little internal memos to myself, and some of ’em have been very short, and they’ve been great and the ones that I have to spend a lot of time on, sometimes those don’t do as well…
…[00:30:27] Clay Finck: Related to this idea of everything changes. I think there’s this profound mental model you sort of introduced to me that this time is always different. People try and make comparisons today to previous times in the past, and they’re trying to make predictions about what’s going to happen.
[00:30:45] Clay Finck: Is the stock market going to crash? Are we going to enter a recession? This mental model of this time is always different, which is again, very liberating. Because even some of the great investors talk about how history tends to repeat itself. Maybe it rhymes but not repeat. Exactly. And I think about how companies are always changing, market dynamics are always changing and everything is changing again.
[00:31:06] Clay Finck: And you talk about indexes and how they’re changing. So people will look at it. The S&P 500, and they’re not really looking at the companies in that index. They’re looking at what the price say in 2003, what’s the price in 2023? What are the multiples between the two? And the reality is that you’re comparing things that are entirely different because the index itself changes.
[00:31:29] Clay Finck: The top holdings in 2003 were much different than in 2023.
[00:31:35] Chris Mayer: Yeah, that’s an important thing. That’s, again, mixes in with a lot of stuff we’ve talked about. The S&P index is a name, that has a label and people treat it as if it’s this comparison over. Decades of time and that it’s a valid comparison.
[00:31:49] Chris Mayer: But you know, just look at the top 10 and the S&P. Now look at it 20 years ago, look at it, 20 years before that, substantially different. And the mix of companies is significantly different. I think the S&P only added financials in the seventies or something like that. So there’s been. A lot of big changes to the index over time, and that’s going to skew your numbers price, earnings ratio, or whatever.
[00:32:10] Chris Mayer: So, that’s been very important and I love that this time it’s a different example too because I think it was Templeton who made that famous, where he said, this time is different, is most dangerous, blah, blah, blah. And I get the idea behind it. The idea behind it is investors want to try to defend bubbles or something, and we all know that they come to an end at some point.
[00:32:29] Chris Mayer: So there’s. There’s some to that, but then the other side is that this time is always different from every other time before that details are always different companies, different people. It’s a different world than now, than it was 20 years ago or 20 years before that in mind. That is the case, which may prevent you from falling into some traps.
[00:32:47] Chris Mayer: Finance, people in finance do this all the time. And Twitter, how many times you’ll see, now they call it X. You’ll see charts where someone will say I have some bear market going like this. And they’ll have a present. It’ll be like this, oh my God, it matches up perfectly and has no validity whatsoever.
[00:33:03] Chris Mayer: At all. Nothing to do with anything, but people love to do that.
[00:33:08] Clay Finck: Just to use an example here, they might look at the S&P 500. I’m just throwing out numbers. These aren’t based on numbers. I actually looked it up, we’ll say the multiple on the S&P was 20 in 2003, whatever it was. And today we’ll say it’s higher than that.
[00:33:23] Clay Finck: We’ll say it’s much higher today than multiple today, and people will assume that, oh, we’re way above the historical means. So eventually things tend to revert to the mean. So is reversion to the mean itself a flawed concept?
[00:33:39] Chris Mayer: Yeah I have another outlier opinion on this, which is that yeah, the versions are mean that people talk about is it is very problematic because there is no real mean, it’s your imagination.
[00:33:50] Chris Mayer: It’s a concept we’ve created, but it doesn’t, there’s no mean, there’s no market. No market says I have to go to this mean, and that mean is always changing, as you pointed out. You could look at the multiple now today, and the SB is a lot higher than it was say in 2003, but in 2003, Some of the biggest companies might include ExxonMobil, which might’ve been a very large company.
[00:34:08] Chris Mayer: 2003 might have been slower growth, more capital intensive businesses that are part of that index versus now there’s. Reasons why they might be very different and it doesn’t make sense to say that today’s S&P has to go to some mean that’s constructed based on constituents that aren’t even in the index today.
[00:34:25] Chris Mayer: I think that’s an overlooked thing. Mean version. You have to be careful again with what are the components. That you’re saying has to mean revert. It might be one thing if you’re looking at a company that does the same thing now, exact same thing it did now 20 years ago, and the margins don’t change very much and suddenly you’ve got a little dip.
[00:34:42] Chris Mayer: There might be something, some way to defend, a reversion to mean, but I’m very skeptical of those kinds of arguments.
[00:34:48] Clay Finck: Again, I think it’s another case where people are just maybe simplifying too much. They’ll be like this company’s trading at the lowest multiple it’s ever been. I’m like, have you looked at the business and the actual where things are trending, where the world is trending?
[00:35:03] Chris Mayer: Sure. Yeah. I know there’s a prominent example, like I know a lot of people are getting excited about, say Danaher, and because it’s traded at the lowest PE it’s traded at in however many years. Do you look at the return on invested capital in Danaher? It’s been in decline. It’s not the same business that it was that people remember in their head at this Great.
[00:35:21] Chris Mayer: High performing conglomerate for all those years, it’s maybe it will get back there. Maybe there’s a thesis that it gets back there. But a lot of times when you see a company trading at the lowest level it’s ever traded at, there’s a reason. And be careful about just assuming that you can buy this today and go back to it, it’ll mean revert, and you’ll make this great return…
…[00:42:39] Clay Finck: Another thing that really stands out to me as I read more and more of your work is your very relaxed nature and your ability to not take yourself too seriously. I want to read a bit here from your book, you write Laugh More. I. Life may not be a joke, but it is often funny.
[00:42:57] Clay Finck: If you keep in mind the abstractions. Most of the serious business of the world seems portentous, trivial, silly, and ridiculous. You can’t help but laugh at it. I read this and I think about this and I think about Buffett and Munger and I see some similar characteristics in that they don’t take themselves too seriously and they truly want to enjoy life.
[00:43:17] Clay Finck: So I’d love for you to talk about. How this maybe ties into investing because you’re managing a fund, you’re managing other people’s money real money at risk, yet you’re able to detach yourself in a way and not become too overwhelmed by it, and not take yourself too seriously.
[00:43:34] Chris Mayer: Yeah, I would say this is learned too.
[00:43:36] Chris Mayer: This is something I’ve had to work at, but it helps to do the a hundred baggers book, looking at the long-term performance of companies. One lesson that’s inescapable from doing all that is you realize that things that seem momentous at certain points in time, I. Really just sort of bleed out and are almost imperceptible over a longer period of time.
[00:43:54] Chris Mayer: So certain quarters, or even where stock prices can make violent moves, 10, 15% move at the time they seem like, wow, it gets stressed out. Something drops 15% or whatever. But you look back in time, even severe bear markets and you look back in time and it’s a little bump in a chart. So when you zoom out, keep a bigger-picture perspective.
[00:44:13] Chris Mayer: That’s helped me a lot. It’s really helped me a lot to do that. But I do think it’s really important. I mean it’s, I think I’ve enjoyed it a lot more the way I am now. Just more relaxed about it. I’m a little more detached, taking a good long view rather than just being so intense where you’re so focused on the moment and the quarter or whatever is going to happen.
[00:44:32] Chris Mayer: And so those guys, buffet, Munger, they’re wise in a lot of ways. And this is one too when Buffet says he. Tap dance into work every day and enjoys it. Some of it has to be this. He can’t take it that seriously.
2. China is no 1990s Japan – but it could have been – Robert Canell
So let’s take a look at what is happening in China and pick apart the deflation argument. Firstly, let’s look for evidence of a bubble because if we are going to argue that it is about to burst, it needs to be there in the first place.
In 1984, land prices for commercial property in Tokyo grew at a respectable 7.2% annual pace, The following year, this accelerated to 12.5%, and the year after that, to 48.2%. By 1987, commercial property land prices were rising at a 61.1% YoY pace. It was once suggested that the 1.5 square kilometres of land surrounding the Imperial Palace in Tokyo, were worth more than all the land in California. And whether or not that calculation stacks up (it sounds highly questionable), it shows just how extreme things had become.
Yes, Japan had a bubble. If we use similar land price data for Beijing for both residential and commercial property, then there are certainly periods when prices accelerate sharply. The most recent period where this happened was between 2014 and 2017 when residential property prices accelerated at about a 20% annual pace. But it has slowed since and is showing small declines now…
…Turning now to the equity markets. If we superimpose the recent price developments of the Shanghai composite index onto the Tokyo stock exchange in the period running up to the bubble, what we see is that China’s stock market has for some time been extremely average. There is no sense at all here of an excessive surge that requires a long period of dismal performance to compensate. That’s not to suggest a particularly bright future for Chinese stocks, but it beats a Japan-style collapse.
Ruling out a deflationary collapse is clearly a positive standpoint. But we also don’t see Chinese growth at much more than 5% over the coming few years. And we have a tough time explaining to people why this is actually a perfectly reasonable growth rate which doesn’t require a panicked response. But here goes…
In previous years, China’s GDP growth had taken a disproportionate boost from property development. Not only does construction provide a substantial direct boost to activity and labour demand, but it also requires a lot of inputs from industry: cement, steel, copper, aluminium, PVC etc. That also provides a big boost to things like energy demand. And new property sales also require furnishings, and that in turn pushes up this aspect of retail spending.
But the amount of growth that construction was delivering to the economy had grown to totally unsustainable levels. In some years, in nominal terms, construction contributed up to almost three percentage points of total GDP growth, often about a third of the total.
To try to highlight how anomalous this was, if you look at average Asian GDP growth rates pre-Covid relative to GDP per capita, China was a huge outlier, growing several percentage points faster than you would expect for an economy of its state of development. And that deviation can be largely put down to growth generated by excessive construction activity. This was essentially construction-driven GDP “bought” with debt and ultimately, unsustainable.
Maintaining this sector at pre-Covid growth rates could have ended up in disaster. Maybe a Japan-style disaster. What the Chinese authorities have done, quite sensibly, is to nip this in the bud before this happens, though this of course is going to mean reversion to slower (more sustainable) growth rates that are more in line with an economy of China’s stage of economic development.
3. Buffett’s 44% CAGR and Various Types of High Quality Investments – John Huber
Warren Buffett initially invested in 5 Japanese stocks in 2020 and I don’t think many people realize how successful this investment has been so far:
That initial basket investment is up over 200%: a 3x in 3 years, or 44% CAGR on that initial investment. Each stock is up over 2x, one is up 5x, and the basket in aggregate up 3x. He’s added to the basket since, and those add on purchases have also done well…
…Just like how we would rate an investment result, a good business is one that makes a lot of money relative to the money that you had to put into it (i.e. high return on capital).
But the most value gets created in companies that see increasing returns on capital (i.e. high incremental returns on capital; e.g. a company where returns rise from 12% to 18%, etc…). I’ve spent a lot of time thinking about Buffett’s investments in Japan (which is now a top 5 investment) and also in energy (which is his largest equity investment behind Apple). The common theme is something that might surprise most people and I think probably isn’t fully appreciated: both groups have rising returns on capital.
I see three things that Buffett probably saw (among other things) in Japan and also in energy:
- Cheap valuations
- Rising ROIC’s
- Significant change in capital allocation policies
(These traits also applied to Apple when he first invested in 2016). Buffett has always prioritized value. We know he has a preference for quality companies but he’s always been a value focused investor who wants a high FCF yield (more so than Munger). He has said “price is my due diligence” and we know from both his words and actions (especially in the earlier years) that he prefers quality, but he demands value.
But, he also wants quality businesses. And despite the stodgy historical returns, these groups are exhibiting current ROIC’s that exceed those of most of the FANG stocks and other high fliers. And not just better ROIC’s but also more rational capital allocation. There isn’t much growth in his Japanese trading companies, but if you pay 7x FCF for a stock that is returning all of that FCF via buybacks and dividends, you earn a 15% annual return even with no growth and no increase in the multiple.
I’ve written about 3 engines: a stock’s return is the product of three simple factors: growth, change in multiple, and capital returns (change in shares outstanding plus any dividends). Over the past decade, many investors focused on the first engine exclusively, ignoring the 2nd and 3rd. This worked over the last decade, but I would not expect it to work going forward. Growth is an important input into value, but it is just one of those three engines. If you pay too much, engine #2 becomes a drag (P/E contraction). If you own a stock that’s diluting through share issuance, engine #3 is a drag. It’s possible to earn high returns from one engine that overcomes the other two, but this is rare.
The best stocks often have all three engines working — sometimes only in surprisingly modest amounts individually, but collectively they can produce fabulous results. For example, a stock that grows earnings at 5%, has a P/E go from 8 to 12 over a 5 year period, and returns all its earnings via buybacks and/or dividends will provide you with approximately 23% total annual returns over that 5 year period. Growth engine gave you just 5%, but you received an 8.4% annual tailwind from the P/E multiple and approximately 10% additional returns from buybacks and dividends…
…Remember: a good business isn’t one that has an interesting or exciting narrative, it’s one that makes a lot of money relative to the money invested into it. Buffett obviously doesn’t get influenced by narratives or growth stories. He’s only interesting in finding great investments. And great investments tend to come from good businesses that are undervalued. And good businesses tend to have two common themes: strong returns on capital and good management that are rationally allocating free cash flow. Japanese stocks and energy stocks lack exciting narratives, but they have these key ingredients that are found in most quality investments: good returns on capital, smart capital allocation, and low valuations. All three engines are working in these two investment areas for Buffett. I think this is what interested him in Apple, it is what interested him in Japan and energy, and it is what has led these investments to become so successful.
Rising returns on capital simply means more earnings per unit of capital invested. These rising ROIC’s can happen in three ways:
1 — increasing the denominator (reinvesting all capital into the business at high rates of return)
2 — increasing the numerator while keeping the denominator flat (i.e. higher earnings on same levels of capital), or
3 — and most surprising to most people — a similar value creation can also come from a shrinking denominator while keeping earnings flat — reducing excess cash levels through buybacks (which reduces the denominator). This means no growth but increasing quality of earning power, which frees up more and more cash to be used for buybacks. This can be especially effective when the rising FCF occurs on stocks with low multiples, as the company can gets a better return (higher FCF yield) on its own shares.
4. Fundamentals simply do not matter in China’s stock markets – Michael Pettis
It is tempting to try to find meaning in the so-called “A-share premium”. This is the persistent valuation gap between the shares of Chinese companies that trade in Shanghai or Shenzhen (known as A-shares) and the shares of the same companies that trade in Hong Kong (H shares)…
…Normally, when onshore and offshore markets are separated by capital controls — and arbitrage is restricted, as is the case in China — onshore markets trade at a discount to the major offshore markets. This makes the Chinese A-share premium all the more anomalous. So why is the same share worth so much more on the mainland than it is offshore?
One theory is that it reflects differing views on political risk, with mainlanders less worried than foreigners about the risk of a political “event” disrupting business prospects. Another theory is that it shows that mainland investors are more optimistic about Chinese growth prospects than offshore investors. A third theory is that it reflects an information asymmetry in which onshore investors have access to a higher quality of information than offshore investors, and so are able to discount future growth prospects at a lower rate.
But none of these explanations makes any sense. They all assume, incorrectly, that prices in the Chinese stock market reflect a fundamental “view” about growth prospects, measured as the present value of future expected cash flows.
They do not, and never have. It has been almost impossible during the past few decades to find a credible correlation between the performance of the Chinese stock market and any measure of growth prospects or profitability. Monthly surges or drops of 10-20 per cent or more occur far too often to suggest any relation with normal economic volatility…
…The problem is that in a market in which macroeconomic data is questionable, financial statements are not credible, corporate governance is unclear, government intervention is unpredictable, and interest rates are repressed, it is impossible to be a fundamental investor except at very low prices, driven down by the high discount rates all this uncertainty requires. Investors whose effect is to drive capital according to its most productive use, in other words, are pretty much priced out of the mainland markets. That is why, for all the promises by local fund managers of their sophisticated fundamental selection process, mainland markets are wholly speculative.
In fact the Chinese stock market is really a Keynesian beauty contest: “winners” are rewarded not for choosing the best-looking contestants, but rather for their ability to figure out the consensus. Successful investors are not those who understand the economy, in other words, but rather those who are good at interpreting government signalling, recognising shifts in liquidity and, above all, quickly discerning or even setting off changes in market consensus…
…It takes many years for a stock market to develop the qualities that allow and encourage fundamental investing. Mainland Chinese markets are slowly moving in that direction, but for now share prices provide no meaningful information at all about China’s economy. The A-share premium probably reflects nothing more than excess domestic liquidity.
5. Robotaxis Are Coming to Los Angeles. Everywhere Could Be Next – Alex Kantrowitz
Cruise is expanding its self-driving taxi operation to Los Angeles amid a year of huge growth for autonomous driving.
The GM subsidiary’s entry into the second-largest city in the U.S.—which I reported first today at Big Technology—comes as it’s increasing its autonomous rides by 49 percent per month and already doing more than 10,000 rides per week. In L.A., Cruise will begin testing soon and then expand to self-driving ride-hailing. It will be the company’s eighth city of operation, up from one at the start of this year. And it won’t be the last…
…As Cruise spreads across the U.S. and Alphabet’s Waymo robotaxi service grows along with it, autonomous driving is finally delivering after years of false hype. The technology went from a perpetual “six months away” to chauffeuring masses of riders this year as both companies gathered experience in pilot cities and used that knowledge to expand to others.
The hardest part of autonomous driving, in reality, was getting to this point. As soon as cars could navigate one or two major cities on their own, the CEO said, expanding to more cities became less of a technology problem and more of a vehicle supply issue. With that supply steadily coming online, rapid scaling should be next.
“Last year, we were operating tens of autonomous vehicles. We’re currently operating hundreds—almost 400 concurrently at peak. Next year, there’ll be thousands. And then it’ll continue at least 10 times growth every year for the foreseeable future,” Vogt said.
Both Cruise and Waymo have found that their technology adapts well across cities, without having to retrain it from the ground up. After adjusting for some city-specific features—like the shape of traffic lights or the nature of traffic circles—their robotaxis can start driving through new cities fairly quickly…
…Waymo is also testing on freeways in the San Francisco area, taking on autonomous driving’s next frontier. Currently, neither Waymo nor Cruise offers ride-hailing customers the option to take freeways. But it shouldn’t be that far away. “On 101, 280, 380, you’ll see our cars at all times of day driving with other cars, at speed, making lane changes, etc.,” Nalavade said. “Hopefully, in the coming months, there’ll be some announcements about our freeways.”
Riding in self-driving cars has become commonplace in some cities already, something I experienced in San Francisco over the past two weeks. In approximately a dozen rides with Waymo and Cruise, I hailed autonomous rides via their apps (similar to Uber and Lyft) and got into their cars alone, in a totally empty vehicle, with no human behind the wheel. It was at first a bit nerve-racking. Then it felt normal. I soon ignored the experience completely. Now I don’t want to ride any other way.
There’s a lot to like about the autonomous vehicles—even if their rollout in San Francisco has been far from perfect. In my experience, they ride smoother than any human driver. Their apps accept ride requests immediately (if the services have enough supply). Their cabins feel private (though there are cameras). And there’s no awkwardness around tip, conversation, climate, or music. Everything is at the rider’s discretion.
From a safety standpoint, both companies claim that data shows that the cars are better than human drivers, although some of the disruption they’ve caused in the Bay Area has inspired a whimsical protest movement intended to stop the tech’s expansion. But once you’re in the vehicle, the stats only confirm what you’re seeing. The cars are cautious, not distracted, not drunk, and they navigate turns and stops with ease.
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 Alphabet and Apple. Holdings are subject to change at any time.
