What We’re Reading (Week Ending 28 June 2020) - 28 Jun 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 28 June 2020):
1. Growth Without Goals – Patrick O’Shaughnessy
Jeff Bezos is an incredible figure. He is known for his focus on the long term. He has even funded a clock in West Texas which ticks once per year and is built to last 10,000 years—an ode to thinking long-term.
But I now realize that the key isn’t thinking long-term, which implies long-term goals. Long-term thinking is really just goalless thinking. Long term “success” probably just comes from an emphasis on process and mindset in the present. Long term thinking is also made possible by denying its opposite: short-term thinking. Responding to a question about the “failure” of the Amazon smartphone, Bezos said “if you think that’s a failure, we’re working on much bigger failures right now.” A myopic leader wouldn’t say that.
My guess is that Amazon’s success is a byproduct, a side-effect of a process driven, flexible, in-the-moment way of being. In the famous 1997 letter to shareholders, which lays out Amazon’s philosophy, Bezos says that their process is simple: a “relentless focus on customers.” This is not a goal to be strived for, worked towards, achieved, and then passed. This is a way of operating, constantly—every day, with every decision.
2. Never The Same – Morgan Housel
The halt in business has been stronger than anything ever seen, including the Great Depression. But the Nasdaq is at an all-time high.
The story isn’t over. And it’s political, so it’s messy. But in terms of quickly stemming an economic wound, the policy response over the last 90 days has been a success.
There’s been the $600 weekly boost to unemployment benefits.
The Fed expanding its balance sheet by trillions of dollars and backstopping corporate debt markets.
The $1,200 stimulus payments.
The Paycheck Protection Plan.
The airline bailouts.
The foreclosure moratoriums … on and on.
I don’t care whether you think those things are right, wrong, moral, or will have ugly consequences. That’s a different topic.
All that matters here is that people’s perception of what policymakers are capable of doing when the economy declines has been shifted higher in a huge way. And it’s crazy to think those new expectations won’t impact policymakers’ future decisions.
It’s one thing if people think policymakers don’t have the tools to fight a recession. But now that everyone knows how powerful the tools can be, no politician can say, “There’s nothing we could do.” They can only say, “We chose not to do it.” Which few politicians – on either side – wants to say when people are losing jobs.
3. What comes after Zoom? – Ben Evans
I think this is where we’ll go with video – there will continue to be hard engineering, but video itself will be a commodity and the question will be how you wrap it. There will be video in everything, just as there is voice in everything, and there will be a great deal of proliferation into industry verticals on one hand and into unbundling pieces of the tech stack on the other. On one hand video in healthcare, education or insurance is about the workflow, the data model and the route to market, and lots more interesting companies will be created, and on the other hand Slack is deploying video on top of Amazon’s building blocks, and lots of interesting companies will be created here as well. There’s lots of bundling and unbundling coming, as always. Everything will be ‘video’ and then it will disappear inside.
4. The Anatomy of a Rally – Howard Marks
There’s no way to determine for sure whether an advance has been appropriate or irrational, and whether markets are too high or too low. But there are questions to ask:
- Are investors weighing both the positives and the negatives dispassionately?
- How do valuations based on things like earnings, sales and asset values stack up against historical norms?
- Is that optimism causing investors to ignore valid counter-arguments?
- Is the market being lifted by rampant optimism?
- Are the positives fundamental (value-based) or largely technical, relating to inflows of liquidity (i.e., cash-driven)?
- If the latter, is their salutary influence likely to prove temporary or permanent?
- What’s the probability the positive factors driving the market will prove valid (or that the negatives will gain in strength instead)?
Questions like these can’t tell us for a fact whether an advance has been reasonable and current asset prices are justified. But they can assist in that assessment. They lead me to conclude that the powerful rally we’ve seen has been built on optimism; has incorporated positive expectations and overlooked potential negatives; and has been driven largely by the Fed’s injections of liquidity and the Treasury’s stimulus payments, which investors assume will bridge to a fundamental recovery and be free from highly negative second-order consequences.
5. Locusts Are A Plague Of Biblical Scope In 2020. Why? And … What Are They Exactly? – Pranav Baskar
Locusts have been around since at least the time of the pharaohs of ancient Egypt, 3200 B.C., despoiling some of the world’s weakest regions, multiplying to billions and then vanishing, in irregular booms and busts.
If the 2020 version of these marauders stays steady on its warpath, the United Nations Food and Agriculture Organization says desert locusts can pose a threat to the livelihoods of 10% of the world’s population.
The peril may already be underway: Early June projections by the FAO are forecasting a second generation of spring-bred locusts in Eastern Africa, giving rise to new, powerful swarms of locust babies capable of wreaking havoc until mid-July or beyond.
6. As Businesses Reopen, We Should Reopen Our Minds – Chin Hui Leong
Even as the ground beneath businesses shift, we should recognise that some of the key qualities we seek as investors will remain unchanged.
We still want to have good management teams at a company’s helm who are willing to adapt to new realities, innovate, and pivot their business accordingly.
Similarly, a business with strong financials and steady free cash flow rarely goes out of style, as cash would provide the company with the all-important financial firepower to turn strategy into reality.
These factors remain timeless.
And we have to keep learning.
We will continue looking for instances and data points that will either validate or break our assumptions on how things may change in the future.
It’s an ongoing process that we, as investors, have to adopt and be willing to change our mind if the situation calls for it.
Ultimately, keeping an open mind and a long term view is key.
New, unexpected developments could take shape in ways we cannot predict ahead of time.
7. Transcript: Jeremy Siegel – Barry Ritholtz and Jeremy Siegel
RITHOLTZ: And I thought I recall didn’t Ben Bernanke specifically saved that to Milton Friedman at some …
SIEGEL: Absolutely. During his 90th birthday. He was the head of ceremonies for his 90th birthday party. He stood up — and this is well before the financial crisis. Milton Friedman died in 2006. Before the financial, it was 2004, he was 90, stood up in front of a group of people. I couldn’t be there because of another engagement and I kicked myself for not being there.
But he said, Milton, the influence of your book and I’m going to promise you, the Great Depression shouldn’t have happened and because of what you did and wrote, it’s not going to happen again. We will not let it happen again.
He said that in 2006 to the face of Milton Friedman — I mean, 2004. Two years later, Friedman passed away. Two years later, Bernanke had to take the playbook from that mammoth monetary history and put it into effect and saved us from the Great Depression.
RITHOLTZ: How incredibly prescient in 2004.
SIEGEL: Wow. Yes. Wow.
