Author: Snippet.Finance

Misc

Parable of the Pottery Class

  • “The ceramics teacher announced on opening day that he was dividing the class into two groups. All those on the left side of the studio, he said, would be graded solely on the quantity of work they produced, all those on the right solely on its quality. His procedure was simple: on the final day of class he would bring in his bathroom scales and weigh the work of the “quantity” group: fifty pounds of pots rated an “A”, forty pounds a “B”, and so on. Those being graded on “quality”, however, needed to produce only one pot – albeit a perfect one – to get an “A”. Well, came grading time and a curious fact emerged: the works of highest quality were all produced by the group being graded for quantity. It seems that while the “quantity” group was busily churning out piles of work – and learning from their mistakes – the “quality” group had sat theorizing about perfection, and in the end had little more to show for their efforts than grandiose theories and a pile of dead clay.” (Source).
Misc

Climate Change Economic Impact

  • Fascinating read about who stands to benefit in the very long run from a warming world.
  • “Draw a line around the planet at the latitude of the northern borders of the United States and China, and just about every place south, across five continents, stands to lose out.“
  • “Incredible growth could await those places soon to enter their prime. Canada, Scandinavia, Iceland and Russia each could see as much as fivefold bursts in their per capita gross domestic products by the end of the century so long as they have enough people to power their economies at that level.“
Snippet Recommends

The Analyst Academy

  • Learning how to invest is a life long journey but as a start one needs to acquire technical knowledge.
  • Exams like the CFA cover a lot of material but tend to be broad and not deep.
  • We have recently come across an outstanding course – The Analyst Academy – on how to be a professional investment analyst.
  • The course is the closest to the real thing we have seen and is run by Stephen Clapham, who has a wealth of experience and even written a book on stock picking.
  • There are other specialist courses – primarily on forensic accounting, balance sheet analysis and valuation.
  • If you enter the code YURI10 you will get a 10% discount exclusive to Snippet Finance readers (Affiliate link, please read our disclaimer).
Stocks

Chip Wars

  • There is a lot being written about China’s push for self-reliance.
  • One of the biggest parts of this story over the next decade is likely to be the battle for semiconductor technology of all kind.
  • The electronic design automation (EDA) industry is controlled by three firms and are all US. China is now making first moves into this industry., crucial for semiconductors.
  • Europe is also getting involved and has just signed a €145bn declaration to develop a next generation processor and 2nm technology.
Stocks

Content Business

  • A great piece of analysis applying Helmer’s 7 powers to the content business in order to establish if content has ability to maintain profitability and resist competition.
  • Scale is one such power – this chart shows there is a slight positive linear correlation between size of budget and eventual box office returns.
  • Network effects are also interesting – given the social dynamics of shared experience and discussing content. Franchises really shine here.
Stocks

e-commerce Marketplaces

  • A brilliant long read on the state of e-commerce marketplaces in 2020.
  • Amazon marketplace, which “added eBay’s worth of sales to its GMV this year“, is a key topic.
  • The nature of sellers there has evolved, including the new trend of capital raised to roll-up (i.e. acquire) sellers.
  • The review also covers other winners like Walmart and Etsy.
Stocks

Real Options and Valuation

  • A fascinating read about the use of real options in valuation analysis by Mauboussin and Callahan.
  • They argue it applies to a subset of companies – namely those with adept management, strong competitive position and high asset volatility.
  • They also show why 2020 had characteristics (like decoupling of volatility and equity risk premium) that made this type of analysis more attractive.
Macroeconomics

Taiwan

  • An investigation by Reuters suggests China is using “gray-zone” warfare to subdue Taiwan via military exhaustion.
  • “The risk of conflict is now at its highest level in decades. PLA aircraft are flying menacingly towards airspace around Taiwan almost daily, sometimes launching multiple sorties on the same day. Since mid-September, Chinese warplanes have flown more than 100 of these missions, according to a Reuters compilation of flight data drawn from official statements by Taiwan’s Ministry of National Defense.” 
  • Something to watch carefully.
Misc

Vanderbilt

  • Business lessons from a man who at one point commanded one in every nine dollars in the United States.
  • “Vanderbilt’s legacy provides timeless and universal lessons in business success. He thrived in an era of enormous technological change as railways revolutionised the American economy. Yet his approach to business is evident in many of the successful businesses we see today; tapping new markets through lower prices, respecting shareholders, sharing scale advantages and sacrificing short term profits for long term gains.“
Macroeconomics

JPM Outlook 2021

  • Good outlook piece by JPM Asset Management.
  • Some amazing stats on the state of US federal finance – debt levels are about to hit World War II peaks (as % of GDP), and the projected 2020 deficit (at 16% of GDP) is the largest since 1945.
  • This interesting chart shows the fall in the corporate effective tax rate for large cap stocks over the years.
  • Under Biden’s plan – which will raise $2.2trn by raising and broadening corporate taxes (vs. $700bn Trump corporate tax cuts) – this trend could reverse (costing 10% of S&P EPS).
  • Lots of other interesting observations inside.
Snippet Blog

Signal from Noise

How does one find valuable signal in the endless sea of pixels on the screen? What follows are a few tips from a year of curating Snippet Finance and more than a decade in financial markets. Relevant not just to investors but to anyone trying to make sense of the world.

(1) Curation

Good curation is important. Find people, not robots or algorithms, that possess the twin attributes of curiosity and experience and let them lead your exploration. FT Alpaville in finance, Benedict Evans and Stratechary in Media and Tech, and Farnam Street and The Browser in the crucial category of “everything else”.

(2) Skimming

Acquire the ability, through practice, to intelligently scan information. Like the investor searching for ideas or the scientist coming up with a hypothesis, it is often best to rely on the subconscious mind to let information wash over you. A good place to start is the section on skimming in this excellent guide on reading.

(3) Only a few things

Only a few things are worth reading carefully. This scene from Short Circuit 2 where Johnny 5 discovers a bookstore sums this up beautifully. Use an app like Pocket to save down those precious long reads. Change your physical environment and sit down to read.

If you are wondering the two books he picks are “Frankenstein” and “Pinocchio”

(4) Finishing is for losers

It’s ok not to finish a book. As Naval Ravikant, Angel List founder said “We’re taught from a young age that books are something you finish. Books are sacred. When you go to school and you’re assigned to read a book, you have to finish the book. So…we get this contradiction where everyone I know is stuck on some book. So what do you do? You give up on reading books for a while. That, for me, was a tragedy because I grew up on books, and then I switched to blogs, and then I switched to Twitter and Facebook. And then I realized I wasn’t actually learning anything. I was just taking little dopamine snacks all day long …. [So] I came up with this hack where I started treating books as throwaway blog posts or as bite-sized Tweets or Facebook posts, and I felt no obligation to finish any book … I’m reading somewhere between ten and twenty books. I’m flipping through them.” [1]

(5) Hupomnemata

Write things down in a notebook. Michel Foucault in his writing on Ethics [2] talks about the hupomnemata, a journal concept from the Ancient Greeks. It is written in order “to capture the already said, to collect what one has managed to hear or read, and for a purpose that is nothing less than the shaping of the self”. It is not meant to be “a detached documentary” but rather “the hupomnemata makes the writer just as surely as the writer makes the hupomnemata” [3].

(6) Repetition

Re-read, as Foucault continues, “from time to time so as to reactualise“[2]. Try to use methods like spaced active repetition so that each repetition leads to efficient retention.

(7) Tell others in order to clarify your own thought

Explain your ideas to someone, ideally someone with no prior knowledge. Here the famous Feynman Technique comes to mind. As America’s greatest thinker Charles Sanders Peirce put it “The very first lesson that we have a right to demand that logic shall teach us is, how to make our ideas clear … To know what we think, to be masters of our own meaning, will make a solid foundation for great and weighty thought.“

(8) Be just the right amount of sceptical

“It makes me nervous when someone believes too deeply or too much. I think that being skeptical and questioning all deeply held beliefs is essential. Of course we must know the difference between skepticism and cynicism because cynicism is as much a restriction of one’s openness to the world as passionate belief is. They are sort of twins.” [4]

(9) Read widely

“Don’t just read in business or finance. Expand the scope into new domains or fields. Follow your curiosity. It is hard to know when an idea from an apparently disparate field may come in handy” Mauboussin [5]

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