Misc

Miscellaneous is often where the gems are.

Misc

US Venture Returns

  • VC managers have seen falling MOIC (multiple of invested capital) returns while IRRs, just like those in private equity buyout, have been rising.
  • This can be explained by use of subscription lines and faster distributions.
  • Notice the difference between median and average – VC tends to have some very high return/size funds.
  • Source.
Misc

US Buyout Returns

  • Private Equity buyout returns measured by multiples on invested capital (MOIC) – a simple cash-in vs. cash-out metric, have been falling since 2009.
  • Interestingly internal rate of return (IRR), a time-weighted measure of return, has been rising.
  • The reason is the increased use of subscription lines – managers financing investment with bank loans delaying capital calls to LPs until later.
  • Mercer data suggests their use has grown 6x since 2010.
  • Note also average and median returns don’t differ much.
  • The note compares returns to public markets showing 1-5% pa excess returns, which have also fallen.
  • Source.
Misc

Geography and History – the US

  • This is a brilliant article on how geography influences history.
  • The United States stands out has having some of the best luck when it comes to advantageous geographic features.
  • “First, the US is fortunate to have mountains and oceans everywhere for defence.”
  • Second it has this – “The US’ Mississippi basin:
    • Has mountain ranges on both sides, which concentrate water inwards.
    • Has over one million square miles (2.5M km) of extremely well-irrigated land – the world’s largest contiguous piece of farmland.
    • Is nearly flat, which is also great for agriculture, but also for building anything for cheap, really.“
  • Third it has “more internal navigable waterways than the rest of the world combined!“, which adds a huge cost advantage.
  • More interesting analysis in the article including applying these ideas to the rest of the world.
Misc

Post and Pre IPO Value Creation

  • Who reaps the majority of the rewards from venture backed companies – VC or public markets?
  • “Over the last decade when measured in terms of total dollars of value creation accruing to pre- and post-IPO investors: post-IPO investor gains have often been substantial.“
  • Of the 165 IPOs analysed – the vast majority had a large share of value accrue to public markets (blue region).
  • There are some exceptions (red region), and some shared (yellow region).
  • Source.
Misc

The Hedgehog and The Fox, revisited

  • Many readers will have heard of the famous distinction from the celebrated essay by Isiah Berlin.
  • But few have read past the first chapter. Much of the brilliant writing has been overlooked.
  • The latest Snippet Blog article is a correction of that omission.
  • In Berlin’s words are ideas that give the analogy a much deeper meaning and in the process help guide investors.
Misc

Bias Blind Spot

  • “People exhibit a bias blind spot: they are less likely to detect bias in themselves than in others.“
  • “Most people recognise that other people are likely to be biased when judging an attractive person, for example, but think that their own judgment of an attractive person is unaffected by this type of halo effect.“
  • Clearly, the majority of people cannot be less biased than their peers – hence the blindspot.
  • Source.
Misc

Active Share

  • A very comprehensive look at active share.
  • The bottom line: evidence suggests active share is not correlated to better performance. The reason:
    • Active share means higher dispersion (bigger range of results).
    • Higher fees.
    • Positive skew (the more concentrated the lower chance of owning the few stocks that generate most of the returns).
  • Lots more in the discussion including a really excellent part on the role of luck vs. skill.
  • In many ways supports what Hosking Partners talk about and put in practice.
Misc

Solitude and Leadership

  • A must read essay on what leadership means and what solitude (seemingly a contradictory state) has to do with it.
  • Lessons here for investors – solitude, concentration, introspection, original thought.
  • This quote was also a gem – “I used to have students who bragged to me about how fast they wrote their papers. I would tell them that the great German novelist Thomas Mann said that a writer is someone for whom writing is more difficult than it is for other people.“
Misc

Broken Windows at Scale

  • Bastiat’s broken window fallacy states: breaking a window may seem to generate economic activity through its repair, but it’s actually a loss once you take the opportunity cost into account.
  • But what if things looked different at scale? Does destruction lead to positive effects?
  • What if we all “both underestimate the costs of being stuck in bad equilibria, and overestimate the pain caused by burning down the system.“
  • This article explores this idea, by reviewing several fascinating economic papers.
  • Does the same apply at the company level?
Misc

Cloud is not all Great

  • Interesting to see cracks form in cloud computing paradigm.
  • In the article a16z make a stark case for repatriating workloads – “We show (using relatively conservative assumptions!) that across 50 of the top public software companies currently utilizing cloud infrastructure, an estimated $100B of market value is being lost among them due to cloud impact on margins — relative to running the infrastructure themselves.”
  • “If you’re operating at scale, the cost of cloud can at least double your infrastructure bill.” … “You’re crazy if you don’t start in the cloud; you’re crazy if you stay on it.“
  • Good discussion of this article here.
  • Computing paradigms do move in cycles but the analysis is missing things like flexibility (cloud is better at flexing workloads up and down) and capital intensity of businesses being a driver of valuation.
Misc

Fund Management Fees

  • Pretty staggering chart on how much of the final value of a portfolio is consumed by fees at various fee rates (x-axis).
  • It assume a portfolio returning 7% pa (this could be 0-10% and not change the analysis) over 40 years.
  • A 1% fee consumes 31% of the final value.
  • Definitely worth reading the full article – which discusses the question of whether fees predict performance.
Misc

eRetail 2.0

  • The mind boggles at the level of innovation going in ecommerce.
  • One major part is entertainment and retail = retailtainment – “shopping as a mass leisure activity”.
  • This is a great article on the phenomenon, covering the plethora of ways it is developing.
  • As usual one needs to look east where a lot of development is taking place.
  • One of the enablers is software that is designed to be addictive – for example infinite scrolling can mimic the bottomless bowl effect leading to 73% more consumption.
Misc

A Few Short Stories

  • A brilliant set of short anecdotes each carrying an important lesson.
  • An example – “When we condemn [the past] for slavery, or for Native American removal, or for denying women their full role in the life of the nation, we ought to pause and think: What injustices are we perpetuating even now that will one day face the harshest of verdicts by those who come after us?“
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