What We’re Reading (Week Ending 27 February 2022) - 27 Feb 2022
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 27 February 2022):
1. Share prices are tanking. Please read this – Scott Phillips
Right now, I’m sitting at my desk, a little numb.
My Twitter feed is full of real-time reports of the Russian invasion of Ukraine.
True, it’s half a world away, but I can’t help but think “There but for the grace of whatever god there may be, go I”.
The invasion is, of course, unconscionable. Despicable.
Ukrainians are pondering a scary and uncertain future, not sure what happens next. Hoping, I’m sure, for the best, but perhaps expecting the worst.
For a world used to relative peace (with exceptions) in modern times, this is a sobering slice of ugly reality.
I’m a finance guy, of course. The Motley Fool is an investment advisory business.
Markets are down today. By a decent margin.
I’ll get to that, but it’s hard to prioritise a relatively small percentage point loss, against what the people of Ukraine have awoken to this morning, their time.
I just did a finance segment on Radio 2GB in Sydney. Yes, the market is ugly, I said. But it’s hard to make that the first thing we talk about, given the impact on lives in Europe.
And yet, as I said, I’m a finance guy, working for an investment company. So, knowing that people would be worried, and in keeping with my area of expertise, I did what I thought was important: I explained what’s going on, finance-wise, and I put it in the context of the long term journey of wealth creation and preservation.
And, of course, it’s possible to walk and chew gum at the same time: to fully acknowledge the horror of an invasion of Ukraine and at the same time consider the investment response…
…I want you to know that no-one knows what the short-term will bring. Just as geopolitics is unpredictable, so is the share market.
Why? For the same reasons: the fundamentals are one thing… but in the short term it’s people who influence things most. Sentiment. Mood. Emotion. Panic. Fear. Greed. They’ll all govern how share prices move in the next few days and weeks.
And the problem is that we can’t know how that’ll change. Maybe investors and traders go into a long, drawn-out funk. Or maybe bargain hunters start buying first thing in the morning, and the ASX closes higher tomorrow.
I don’t know, and you don’t know. And we need to make our peace with that short-term uncertainty.
I want you to know that, with a few exceptions, ASX-listed companies won’t be doing anything different tomorrow, next week, next month or next year, no matter what happens in Ukraine.
Which means that any share price falls are completely disconnected from business fundamentals in many, frankly most, cases. Woolworths Group Ltd (ASX: WOW) keeps selling groceries. Cochlear Limited (ASX: COH) keeps restoring hearing. Commonwealth Bank of Australia (ASX: CBA) keeps processing transactions…
…I’m (almost) always fully invested.
Why? Because, over time, the market has always set new highs.
Not in the absence of tough days like today.
But despite these sorts of days.
2. What Is Swift and Could It Be Used in Sanctions Against Russia? – Patricia Kowsmann and Ian Talley
What is Swift?
The Society for Worldwide Interbank Financial Telecommunication, or Swift, is the financial-messaging infrastructure that links the world’s banks. The Belgium-based system is run by its member banks and handles millions of daily payment instructions across more than 200 countries and territories and 11,000 financial institutions. Iran and North Korea are cut off from it.
Why is Swift important for countries, including Russia?
Cross-border financing is critical to every part of the economy, including trade, foreign investment, remittances and the central bank’s management of the economy. Disconnecting a country, in this case Russia, from Swift would hit all of that.
Why are other countries resisting it?
Critics say there could be economic blowback, not just in Europe, which has deep trade ties and relies heavily on Russia’s natural gas exports, but also the rest of the world. Some former U.S. officials say the move could severely hurt Russia’s economy, but also harm Western business interests such as the major oil companies. President Biden, while ruling it out for now, said the option isn’t off the table completely…
…Additionally, using Swift as a weapon could erode the dollar-dominated global financial system, including by fostering alternatives to Swift being developed by Russia and the world’s second largest economy, China. That could undermine Western power, especially the diplomatic leverage that sanctions offer.
3. Teaching AI to translate 100s of spoken and written languages in real time – Sergey Edunov, Paco Guzman, Juan Pino, and Angela Fan
For people who understand languages like English, Mandarin, or Spanish, it may seem like today’s apps and web tools already provide the translation technology we need. But billions of people are being left out — unable to easily access most of the information on the internet or connect with most of the online world in their native language. Today’s machine translation (MT) systems are improving rapidly, but they still rely heavily on learning from large amounts of textual data, so they do not generally work well for low-resource languages, i.e., languages that lack training data, and for languages that don’t have a standardized writing system.
Eliminating language barriers would be profound, making it possible for billions of people to access information online in their native or preferred languages. Advances in MT won’t just help those people who don’t speak one of the languages that dominates the internet today; they’ll also fundamentally change the way people in the world connect and share ideas…
…The AI translation systems of today are not designed to serve the thousands of languages used around the world, or to provide real-time speech-to-speech translation. To truly serve everyone, the MT research community will need to overcome three important challenges. We will need to overcome data scarcity by acquiring more training data in more languages as well as finding new ways to leverage the data already available today. We’ll also need to overcome the modeling challenges that arise as models grow to serve many more languages. And we will need to find new ways to evaluate and improve on their results.
Data scarcity remains one of the biggest hurdles to expanding translation tools across more languages. MT systems for text translations typically rely on learning from millions of sentences of annotated data. Because of this, MT systems capable of high-quality translations have been developed for only the handful of languages that dominate the web. Expanding to other languages means finding ways to acquire and use training examples from languages with sparse web presences.
For direct speech-to-speech translation, the challenge of acquiring data is even more severe. Most speech MT systems use text as an intermediary step, meaning speech in one language is first converted to text, then translated to text in the target language, and then finally input into a text-to-speech system to generate audio. This makes speech-to-speech translations dependent on text in ways that limit their efficiency and make them difficult to scale to languages that are primarily oral.
Direct speech-to-speech translation models can enable translations for languages that don’t have standardized writing systems. This speech-based approach could also lead to much faster, more efficient translation systems, since they won’t require the additional steps of converting speech to text, translating it, and then generating speech in the target language.
In addition to their needing suitable training data in thousands of languages, MT systems today are simply not designed to scale to meet the needs of everyone around the globe. Many MT systems are bilingual, meaning there is a separate model for each language pair, such as English-Russian or Japanese-Spanish. This approach is extraordinarily difficult to scale to dozens of language pairs, let alone to all the languages in use around the world. Imagine needing to create and maintain many thousands of different models for every combination from Thai-Lao to Nepali-Assamese. Many experts have suggested that multilingual systems might be helpful here. But it has been tremendously difficult to incorporate many languages into a single efficient, high-performance multilingual model that has the capacity to represent all languages.
Real-time speech-to-speech MT models face many of the same challenges as text-based models but also need to overcome latency — the lag that occurs when one language is being translated to another — before they can be effectively used to enable real-time translations. The main challenge comes from the fact that a sentence can be spoken in different word orders in different languages. Even professional simultaneous interpreters lag behind the original speech by around three seconds. Consider a sentence in German, “Ich möchte alle Sprachen übersetzen,” and its equivalent in Spanish, “Quisiera traducir todos los idiomas.” Both mean “I would like to translate all languages.” But translating from German to English in real time would be more challenging because the verb “translate” appears at the end of the sentence, while the word order in Spanish and English is similar.
4. What’s at stake in Ukraine is the direction of human history – Yuval Noah Harari
At the heart of the Ukraine crisis lies a fundamental question about the nature of history and the nature of humanity: is change possible? Can humans change the way they behave, or does history repeat itself endlessly, with humans forever condemned to reenact past tragedies without changing anything except the decor?
One school of thought firmly denies the possibility of change. It argues that the world is a jungle, that the strong prey upon the weak and that the only thing preventing one country from wolfing down another is military force.
This is how it always was, and this is how it always will be. Those who don’t believe in the law of the jungle are not just deluding themselves, but are putting their very existence at risk. They will not survive long.
Another school of thought argues that the so-called law of the jungle isn’t a natural law at all. Humans made it, and humans can change it. Contrary to popular misconceptions, the first clear evidence for organised warfare appears in the archaeological record only 13,000 years ago.
Even after that date there have been many periods devoid of archaeological evidence for war. Unlike gravity, war isn’t a fundamental force of nature. Its intensity and existence depend on underlying technological, economic and cultural factors. As these factors change, so does war…
…During the same period, the global economy has been transformed from one based on materials to one based on knowledge. Where once the main sources of wealth were material assets such as gold mines, wheat fields and oil wells, today the main source of wealth is knowledge. And whereas you can seize oil fields by force, you cannot acquire knowledge that way. The profitability of conquest has declined as a result.
Finally, a tectonic shift has taken place in global culture. Many elites in history – Hun chieftains, Viking jarls and Roman patricians, for example – viewed war positively. Rulers from Sargon the Great to Benito Mussolini sought to immortalise themselves by conquest (and artists such as Homer and Shakespeare happily obliged such fancies). Other elites, such as the Christian church, viewed war as evil but inevitable.
In the past few generations, however, for the first time in history the world became dominated by elites who see war as both evil and avoidable. Even the likes of George W Bush and Donald Trump, not to mention the Merkels and Arderns of the world, are very different types of politicians than Atilla the Hun or Alaric the Goth…
…The decline of war is evident in numerous statistics. Since 1945, it has become relatively rare for international borders to be redrawn by foreign invasion, and not a single internationally recognised country has been completely wiped off the map by external conquest. There has been no shortage of other types of conflicts, such as civil wars and insurgencies.
But even when taking all types of conflict into account, in the first two decades of the 21st century human violence has killed fewer people than suicide, car accidents or obesity-related diseases. Gunpowder has become less lethal than sugar…
…The decline of war didn’t result from a divine miracle or from a change in the laws of nature. It resulted from humans making better choices. It is arguably the greatest political and moral achievement of modern civilisation. Unfortunately, the fact that it stems from human choice also means that it is reversible.
Technology, economics and culture continue to change. The rise of cyber weapons, AI-driven economies and newly militaristic cultures could result in a new era of war, worse than anything we have seen before. To enjoy peace, we need almost everyone to make good choices. By contrast, a poor choice by just one side can lead to war.
This is why the Russian threat to invade Ukraine should concern every person on Earth. If it again becomes normative for powerful countries to wolf down their weaker neighbours, it would affect the way people all over the world feel and behave.
The first and most obvious result of a return to the law of the jungle would be a sharp increase in military spending at the expense of everything else. The money that should go to teachers, nurses and social workers would instead go to tanks, missiles and cyber weapons.
A return to the jungle would also undermine global co-operation on problems such as preventing catastrophic climate change or regulating disruptive technologies such as artificial intelligence and genetic engineering. It isn’t easy to work alongside countries that are preparing to eliminate you.
And as both climate change and an AI arms race accelerate, the threat of armed conflict will only increase further, closing a vicious circle that may well doom our species.
5. The Infinite Optimism of Physicist David Deutsch – John Horgan and David Deutsch
Horgan: Are you as optimistic now as when you wrote The Beginning of Infinity?
Deutsch: What I call optimism is the proposition that all evils are due to a lack of knowledge, and that knowledge is attainable by the methods of reason and science. I think the arguments against that proposition are as untenable as ever.
I’m also “optimistic” in the sense that I expect progress to continue in the future. I’m even a little more so now than I was, because I see that the idea of it is catching on.
Horgan: Do you really, truly, believe in existence of other universes, as implied by the many-worlds hypothesis?
Deutsch: It’s my opinion that the state of the arguments, and evidence, about other universes closely parallels that about dinosaurs. Namely: they’re real – get over it.
But I think that belief is an irrational state of mind and I try to avoid it. As Popper said: “I am opposed to the thesis that the scientist must believe in his theory. As far as I am concerned ‘I do not believe in belief,’ as E. M. Forster says; and I especially do not believe in belief in science.” (Actually Forster’s view was much more equivocal than Popper’s on this.)…
…Horgan: Do you believe in what Steven Weinberg has called a “final theory” in physics?
Deutsch: No. I guess that deeper theories will always reveal still deeper problems. (“Deeper” doesn’t necessarily mean “in terms of ever smaller constituents,” by the way.)
Horgan: Edward Witten has said that consciousness “will always remain a mystery.” What do you think?
Deutsch: I think nothing worth understanding will always remain a mystery. And consciousness (qualia, creativity, free will etc.) seems eminently worth understanding.
6. Sebastian Kanovich – Powering Emerging Markets Payments – Patrick O’Shaughnessy and Sebastian Kanovich
[00:16:18] Patrick: What have you learned given how many times you’ve done it about working with new regulators and regulatory environments? What is excellent to you on your team at dealing with this unique aspect of it, if that’s such a key part of success?
[00:16:32] Sebastian: To me, the biggest lesson has been the importance of treating regulators as grownups that are trying to do the best they can in the markets under the conditions they operate. Sometimes us from a payment standpoint or from a technology standpoint, we want to move fast. We want everything to be obvious in 30 seconds. We forget that people in the regulatory bodies have a very different set of incentives. They want to understand exactly what is it that’s going to be processed, and making sure that you raise their comfort level and you continue to invest in that education process, it’s something that we’ve learned.
In many countries where we operate, we are working with the regulator to build a regulatory framework. This is how a regulatory framework should look for a company like Google. These are the things you should take care of. This is how you should think of taxes. And I think over time, they get to see us more and more as an enabler. The thing that has happened in the last few years is that some of the merchants for which we process have become ubiquitous in the markets where we operate. Users won’t live without Facebook or without Google, or they’ll do WhatsApp messaging and commerce, and they’ll drive an Uber and they’ll get a Rappi . All of that complexity exists and regulators understand. So they are more and more open to say, how do we cover for this? How do we make sure there’s a regulatory framework? There’s a way for these companies to be able to thrive and us as a regulator to be comfortable. Understanding those two things has been extremely important…
…[00:29:18] Patrick: There’s a nice thesis that I like to think about, which is that for every repetitive digital function, there will be an API first company that standardizes that function and provides a sort of Lego piece so that developers can build as many apps as they want. And they basically hire out the discreet repeatable functions. Since you’re doing that, providing one of those very big function in this case, abstracted away from payments, what have you learned just about great API building? What advice would you give to the founders out there not in payments, but just in the API space that are trying to build an excellent single function that becomes widely adopted for developers?
[00:29:55] Sebastian: I think the biggest temptation when you are building an API business is what your API should do and what it shouldn’t do and what are the limits of what you are trying to build. APIs are powerful where they’re standardized. So if for any given use case, you need to integrate into five different places, even if the value proposition is great, to me, that’s dead before starting. We always try to find an initial pain point that can be covered and be ruthless about saying no to the other stuff, because we think that’s a way that you generally differentiate. It’s tough to be solving hundreds of things because you are aiming to standardize. By definition if you standardizes, you need to say no to some stuff. If you have too many use cases, you are not covering anything. That’s something we’ve learned and we’ve learned the hard way.
The other thing is API businesses are sometimes tempted to compete with their customers. When you’re providing infrastructure, you are sitting in the middle of that transaction where value is being created, and it’s very tempting for companies to say, “I understand the user. I understand the merchants. Why do I sit in the middle?” Part of what I think has made dLocal successful as of now, it’s making sure that our merchants and our counterparts understand that we are not here to compete with them. We are here to power them and for infrastructure place like us and typically API based companies are infrastructure place, I see many of them being tempted to be in front of the end user, and that’s something I would strongly discourage.
[00:31:11] Patrick: Maybe we could give an example of each of those two things. Those are awesome lessons. So starting with the first one, in dLocal, what was an example of the feature that was tempting to build or that you did build that turned out to too much of a distraction for whatever reason?
[00:31:25] Sebastian: We’ve been asked 100 times to go to Germany or to the U.K. Is it easy to do from an API standpoint? Very easy. Do we have the regulatory framework? Absolutely. Are we going to do it? No way. Part of that is saying, what are the use cases that are really complex that we’re going to be able to solve? I’m sure that we could get some traction in that business. Is it going to be a differentiator? No, it’s not. So we’d rather double down or invest in places where it might take longer, but if we get it right, we are differentiating. That’s why we get much more excited over Bangladesh than we get about Germany, because there’s other APIs that are solving the German problem really well or the U.K. or the U.S. problem really well. That’s one lesson.
On the second side on not going after your users, when we were starting, we got many of our merchants to ask us to send emails to our database saying, promote our product. Today it’s very easy to say no. Back in 2016, when we were starting, we said it might be tempting. And we understood really fast that was not a smart decision. Many payments companies do that. We were always against it, because the moment you do it once, you start, the next situation is to this is the product you should be buying. This is how you should be thinking about which ride sharing company to use. And we want to be able to provide infrastructure. We shouldn’t be choosing winners. It’s very tempting and it’s something we haven’t done. And we are strongly committed not to do.
7. Makes You Think – Morgan Housel
A few lines I came across recently that got me thinking:
“It is far easier to figure out if something is fragile than to predict the occurrence of an event that may harm it.” – Nassim Taleb…
…“Everything feels unprecedented when you haven’t engaged with history.” – Kelly Hayes
“My definition of wisdom is knowing the long-term consequences of your actions.” – Naval Ravikant…
…“It is difficult to remove by logic an idea not placed there by logic in the first place.” – Gordon Livingston
“The best arguments in the world won’t change a single person’s mind. The only thing that can do that is a good story.” – Richard Powers…
…“Technology finds most of its uses after it has been invented, rather than being invented to meet a foreseen need.” – Jared Diamond…
…“Science gathers knowledge faster than society gathers wisdom.” – Isaac Asimov
“Humans don’t mind hardship, in fact they thrive on it; what they mind is not feeling necessary. Modern society has perfected the art of making people not feel necessary.” – Sebastian Junger
“Psychology is a theory of human behavior. Philosophy is an ideal of human behavior. History is a record of human behavior.” – Will Durant
“No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future.” – Kolossus
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. Of all the companies mentioned, we currently have a vested interest in dLocal. Holdings are subject to change at any time.
