What We’re Reading (Week Ending 5 July 2020) - 05 Jul 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 5 July 2020):
1. 40 Things I’ve Learned in 40 Years – Cullen Roche
1) Always try to be a good person. This is the most obvious one and also often the hardest one. Life is hard and everyone is fighting their own personal battles. Help them through it by being kind enough to try to understand their battle.
2) Never mistake money for wealth. The person who mistakes money for wealth will live a life accumulating things, all the while mistaking a life of owning for a life of living.
3) Never stop learning. Life is one big lesson and the older you get the more you’ll realize how little you know. Never lose an unquenchable thirst for knowledge and understanding.
2. Why We’re Blind to Probability – Morgan Housel
Let’s say you’re a 75-year-old economist. You started your career at age 25. So you have half a century of experience predicting what the economy will do next. You’re as seasoned as they come.
But how many recessions have there been in the last 50 years?
Seven.
There have only been seven times in your career that you’ve been able to measure your skills.
If you want to really judge someone’s abilities you would compare dozens, hundreds, or thousands of attempts against reality. But a lot of fields don’t generate that many opportunities to measure. It’s no one’s fault; it’s just the reality of the real world is messier than an idealized spreadsheet.
It’s an important quirk, because if someone says “there’s an 80% chance of a recession,” the only way to tell if they’re right is to compare dozens or hundreds of times they made that exact call and see if it came true 80% of the time.
If you don’t have dozens or hundreds of attempts – sometimes you have one or two – there’s no way to know whether someone who says “75% chance of this,” or “32% chance of that” is right or not. So we’re all left guessing (or preferring those who profess certainty, which is easier to measure).
3. Behind the Fall of China’s Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee – Jing Yang
A group of Luckin employees had already begun helping sales along by engineering fake transactions, starting the month before the IPO, according to people familiar with the operation. The employees used individual accounts registered with cellphone numbers to purchase vouchers for numerous cups of coffee. Between 200 million and 300 million yuan of sales ($28 million to $42 million) were fabricated in this manner, according to a person familiar with the matter.
The undertaking became more complex. In late May 2019, orders began flooding in under a fledgling line of business that involved selling coffee vouchers in bulk to corporate customers, according to internal records reviewed by the Journal.
Alongside bona fide voucher sales, to a few regular clients such as airlines and banks, the records show numerous purchases by dozens of little-known companies in cities across China. These companies repeatedly bought bundles of vouchers, often in large amounts. Rafts of orders sometimes came in during overnight hours.
Qingdao Zhixuan Business Consulting Co. Ltd., situated in China’s northern Shandong province, bought 960,000 yuan ($134,000) worth of Luckin vouchers in a single order, according to the documents. They show it made more than a hundred similar purchases from May to November of 2019.
Mainland China and Hong Kong corporate-registry records link this company to a relative of Mr. Lu, to an executive of Mr. Lu’s previously founded Ucar Inc. and to a Luckin executive, via a complex web of other companies and their directors and shareholders. Qingdao Zhixuan also has the same telephone number as a branch of CAR Inc. and is registered with a Ucar email address.
4. How Big is the Racial Wealth Gap? – Nick Maggiulli
Unfortunately, even when we control for a household’s education level, the wealth gap still exists between White and non-White households. In fact, the median Black household with a college degree has a net worth similar to the median White household without a high school diploma.
Yes, you read that right. A college degree barely gets a Black household past where a White household is with no high school education.
5. The Anthropause: How the Pandemic Gives Scientists a New Way to Study Wildlife – Matt Simon
“There is an amazing research opportunity, which has come about through really tragic circumstances,” says lead author Christian Rutz, an evolutionary ecologist at the University of St. Andrews and Harvard University. “And we acknowledge that in the article. But it’s one which we as a scientific community really can’t afford to miss. It’s an opportunity to find more about how humans and wildlife interact on this planet.”
Historically, this has been difficult to study. Researchers might have been able to compare how species behave in a protected area versus a neighboring unprotected area, or an urban versus a rural environment. “The problem with all of these approaches is that they usually refer to just a handful of sites,” says Rutz. “And what happened here in the anthropause is that we have this global slowing of human activity, which gives us these really valuable replicates, where we can look at the effects of human activity across geographic regions, across ecosystems, and importantly, also across species.”
Take the fishers—carnivorous mammals in the weasel family—living in North America. “They were supposed to be out in the woods far away from people, and somehow they entered cities again,” says ecologist Martin Wikelski of the Max Planck Institute of Animal Behavior and University of Konstanz, coauthor on the anthropause paper. “This is a change in culture—it’s not a genetic change.”
6. SITALWeek #251: How a Handful of Chip Companies Came to Control the Fate of the World – NZS Capital, LLC
Photolithography is a good example. In short, when the light source used in the process had to change from a wavelength of 193nm to 13.5nm to accommodate smaller, more intricate patterns on leading-edge chips of ever-decreasing geometry, only one company even tried to do it.
Extreme ultraviolet lithography (EUV) is an almost magical process. In a vacuum, 50,000 microscopic droplets of molten tin are fired every second in a stream as one laser strikes each one so precisely that they flatten into discs before another bombards them with so much power that they become balls of plasma shining with EUV light. The machines cost almost $200 million, can be the size of a house and are contained within ultraclean environments to keep out even a single speck of dust. The scanners and lasers that power EUV lithography are so complex that a decade ago many scientists believed them to be an impossibility, and Nikon, ASML’s key competitor, viewed the technology as so complicated that it didn’t even attempt to develop an EUV tool.
Because of its unique mastery of EUV, ASML has built a de facto monopoly in manufacturing the machines that make the most advanced chips. The Dutch company expects to ship about 35 scanners this year, taking the total used by foundries around the world to around 100. TSMC and Samsung are already in high-volume manufacturing with EUV, while Intel will be using the process from 2021.
Without EUV, Moore’s Law, which states that the density of transistors on a chip will double about every two years, would likely have reached its limitations. But because of the process, TSMC is building 7nm and 5nm fabs, and is investing another $20 billion on a 3nm node foundry, while Samsung, South Korea’s biggest company, said in May 2020 it started building a 5nm facility near Seoul based on EUV as part of a $116 billion plan outlined in April 2019 to compete with TSMC in contract chipmaking.
7. The Nifty Fifty and the Old Normal – Ben Carlson
Although the Nifty Fifty stocks got crushed after being bid up so much by investors in the early-1970s, their long-term results were still pretty good. Jeremy Siegel published Revisiting The Nifty Fifty in 1998. He published the annual returns from 1972 through the summer of 1998 for these stocks along with their 1972 P/E ratios and subsequent earnings growth rates:
Many of the stocks at the top of the list showed extraordinary performance. Some of these stocks were terrible investments. But you can see over this multi-decade period, this group actually more or less kept up with the overall stock market. Despite crashing from lofty levels, over the long-term the Nifty Fifty did just fine.
