A Few Things: Become a Better Listener, Regime Change, Chanos, Marks, Woods, Shvets on Markets, Chimp Paradox, Writings of Bezos and Buffett, Case for Nuclear, Story of Art, Josh Wolfe on Venture....
February 3 2023
Quotes I’ve been thinking about:
"The more an idea is tied to your identity, the more you will ignore evidence it is false. To continue to grow and learn, you must be willing to update, expand, and edit your identity."
- James Clear
“Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things you only hoped for.”
“We have to continually be jumping off cliffs and developing our wings on the way down.”
- Kurt Vonnegut
“Not till we are lost…do we begin to find ourselves.”
- Henry David Thoreau
“When I was young I observed that nine out of every ten things I did were failures, so I did ten times more work.”
- George Bernard Shaw
A. A Few Things Worth Checking Out:
1. This was the most impactful thing I listened to this week. Shane Parrish at the The Knowledge Project spoke to executive coach Carolyn Coughlin calls on more than a decade of experience to help you become a better listener.
She goes in-depth on why the language we use with each other and with ourselves is so important, the three different types of listening, the most common skill she teaches that makes an immediate impact, and how to help your kids become better listeners.
Specific things I picked up
a) The 3 types of listening:
Are you listening to understand and learn
Are you listening to fix
Are you listening to win
Often we think we are listening to understand, but we are just listening to win. This is important, maybe with those closest to us. With my children I am going to try to listen to learn and understand rather than to fix and win.
For example, when your children are unhappy or sad about something, rather than quickly saying “it’s going to be ok” to your child and telling them to move on which is listening to fix, you could just listen to understand and learn their fears and perspective.
b) The words we use define the world we live in: We make sense of the world from the words we use. For example, saying “I need to” versus “I want to”, or “I have to” or “I want to”, are completely different worlds.
On the subject of work life balance, which feels like a precarious balancing act versus talking about the mosaic of our life, where you see the beauty & complexity of the mosaic of your life.
c) Creating the conditions of your success. How can you change your environment, who you hang out with, how your life is structured so your life can be more in line with what you want.
She shared some great studies here and this is an important question to ask.
2. We are all trying to learn how to invest through this regime change. Carl Kawaja was on Invest Like the Best Podcast: Dealing with Regime Change.
This one is packed with lessons.
[00:02:44] - [First question] - What the market feels like to him today
[00:06:00] - The pros and cons of the cost of capital and experimentation
[00:09:09] - Things we can learn from Oil & Gas stocks and resource commodities in general
[00:14:38] - Pulling apart the key lessons from Berkshire’s purchases of IBM and Apple
[00:20:37] - The practical implications of wanting to land more soft-wins in investing that aren’t apparent out of the gate
[00:25:52] - How he approaches and considers products and product cycles writ large
[00:33:15] - Thoughts about making money from value based strategies
[00:38:31] - His methodology to go about finding the next diamond in the rough
[00:59:41] - The role fossil fuels play in the energy transition and the current regime change
[01:07:35] - What we can learn from uncontroversial transitions in the past
3. Viktor Shvets at Macquaire Capital is one of my top 3 favourite market strategists, he wrote a great book: The Great Rupture, which we discussed in April 2021.
He was on the Bloomberg Odd Lots podcast, while rest of Wall Street was calling for a difficult 2023 and persistent inflation, Viktor has been focused on inflation being transient, 2023 being the year where risk fades and EPS being strong.
He’s in the deflationary camp long term (and maybe even a return to easy money!) and doesn’t think on-shoring / re-shoring is inflationary. All non-consensus at the moment, so worth listening to.
Bottom line: long Commodities due to ESG and China but also long markets more broadly, especially where EPS fears are pronounced. The global consumer is in great shape.
4. Christopher Wood, Global Head of Equity Strategy for Jefferies in Hong Kong, sees a strong recovery in China and a looming recession in the US.
Do you expect the boom in China to be led by private consumption?
Yes, this is a consumption story. I don’t expect a big government stimulus story like we had in 2008/09, when China pulled the world economy out of a deep hole after the Lehman shock. The Party leadership knows that they undermined their economic system back then, because their debt went up too quickly. So the technocrats under Xi have been pursuing a deleveraging policy in the past years. They understood that the stimulus in 2009 was destabilizing, that’s why I don’t think they will do something like that again. So the driver from an investment standpoint is the pickup in consumption. Households in China always had high savings rates, but it got even higher during the past three years. We have seen a huge buildup in bank deposits. It will be very important to see in the coming months if the demand for property comes back. Lunar New Year starts on January 22nd, so the first chance to see any sign of a pickup will be after the New Year.
Given the macro picture you paint, you recently wrote that this is the best time in many years to buy Asian and emerging market equities?
Yes, definitely. I see the best chance in many years for Asia and emerging market equities to outperform on a sustainable basis given the prospect for earnings downgrades in America and the reverse in China, the positive implications for commodities of a China reopening, and the likely weakening of the dollar in the event of a u-turn by the Fed. I think Asian emerging markets would have outperformed last year already. The setup was great, as China had started fiscal and monetary easing in late 2021 while the Fed was starting to tighten. But then we had this surprise that Xi stuck to this extremely rigid Covid policy. That suppressed China and most of Asia. But now with this Covid u-turn, we are set up for outperformance in Asia. We don’t even need a boom in China, just a normalization. Valuations in Asia are much lower than in the US, and the monetary and fiscal fundamentals are much more positive than in most Western economies.
5. Short seller Jim Chanos was on CNBC for a 25min segment discussing the market, short selling opportunities and Tesla.
6. Many years ago, I read a fascinating book called The Chimp Paradox by Professor Steve Peters. It was a fresh way of illustrating the internal struggle we always have between our “human” and “animal” brains. It helped me a ton and I even taught my kids some of the ideas I picked up - they both know about the chimp inside their head.
Prof Peters became famous for helping sports men and women achieve success through focusing on their mental side. He was involved with Team GB for the 2010 Olympics.
High quality stuff in here.
This interview with Marks summarises a lot of his recent essays.
Two key bits:
What else is important when it comes to the right calibration of a portfolio?
When you think about what your risk posture is in terms of aggressiveness vs defensiveness, the next question is: Will you change it from time to time, as the conditions in the market change? Most people probably don’t have the ability to change their risk posture appropriately. They will lose money because of trading costs, so they should just strap in and hold on. In my 50 years in this business, I only made about five, six or seven market calls; once or twice a decade, when the market was either ridiculously overpriced or ridiculously underpriced. In these rare moments, you could reach a firm conclusion and you were probably correct. If I had tried to do this 50 times, or 500 times it would have been a disaster. It’s just not a good idea to think you can regularly gain success through what’s called market timing.
If you can stomach a fair amount of volatility, where are the best opportunities for bargain hunters today?
Since market psychology is moderate, bargains are not pronounced. We’re in transition from «flawless» to «hopeless». We saw great excesses to the upside when people thought it was «flawless», we will see great excesses to the downside when people think it’s «hopeless». But in between, where we are now, there’s nothing clever to do. One of the most important things is patient opportunism: Try to avoid mistakes, and when there is nothing clever to do, the mistake lies in trying to be clever. So now is a good time to sit on your hands, read about how to be a good investor, ignore the noise, and try to get ready for the opportunities when they come.
8. Continuing to love the Founders podcast. Two I listened to in January that have stayed with me:
This was really insightful and a great tour of Bezos’ thinking as he built Amazon.
I picked up a couple of ideas on being: tenacious and resourceful. Bezos’ (as Dyson spoke about in his autobiography) focused on creating newness and uniqueness for it’s own sake.
This came from being both relentless and focused on the goal. A big part of the story behind the scenes how Amazon focused on hiring the best talent - concept of bar raiser.
Bezos likes to say its always day 1 in how he thinks about Amazon, which means they never tire of innovating, growing and learning - but always focus on pleasing the customer not what competitors are doing.
This is a great way to get all the condensed wisdom of Munger and Buffett in one place. So much quality here.
9. This might be the year of Nuclear Energy. What opportunities come out of growing demand for and acceptance of Nuclear Energy.
Here are a few things worth reading & listening to on the opportunity set if you are interested in learning more.
Short & Simple post by Hedge Fund Manager Harris Kupperman on Inflecting Trends in Nuclear.
Longer and more detailed post on what happened in the world of Uranium in 2022.
MacroVoices podcast spoke to Justin Huhn, who runs the Uranium Insider newsletter to discuss the overall investment argument for nuclear energy and understanding the nuclear fuel cycle and how to invest in it and much more.
B. The Story of Art
If you like going to museums and art galleries, this is a must read book.
The Story of Art, by E. H. Gombrich, is the story of mankind’s image and story making.
It was first published in 1950 by Phaidon, the book is widely regarded both as a seminal work of criticism and as one of the most accessible and beautiful introductions to the visual arts. Over eight million copies have been sold, and it has been translated into more than 30 languages.
The book starts in the prehistoric times, Egypt, Greece, and works through over thousands of years to Impressionism and Modernism.
It took me 20 minutes every day since November to get through this +600 page tome and I look at every piece of art now with new eyes.
Gombrich is a fascinating man, and the author of countless other great books.
The book was 1st published in 1950’s and Gombrich died in 2001 so this isn’t a book where you can hear the author on a podcast or webinar, but you can get a flavour of the man in this short interview with Charlie Rose from 1995.
Thank you William F and Victoire N for flagging this book to me, when we discussed John Berger’s Ways of Seeing in November.
C. The Tech and Crypto Section:
1. Josh Wolfe of Lux Capital always leaves me with a lot to think about. He’s always impressed me as someone who thought and saw the world differently and could articulate his vision clearly.
Enjoyed this piece by Exit Fuel, a few key bits:
Timeless advice regardless of whether it was 20 years ago or today would be this: always be prepared, ready to pitch, ready to make a lasting impression, and ready to make the ask.
Be able to articulate the current situation in the markets, and why you have an indisputably different, unique angle. And lastly, arguably the most important, people can tell if you really want something, not a greedy wanting, but an ambitious wanting––an intensity even a fiery quiet one that conveys a confidence (not a complacent confidence but a conditional one that almost says ‘I cannot fail, I cannot afford to fail, I want this and I want to win and I will be relentlessly undeterred until I do’).
(PFF): Why do you feel like it is so important to consume such a broad range of topics if you are largely investing in relatively specific, defined verticals? If you had to synthesize a list of five books that truly shifted the way that you see the world, and that you could attribute your success as an investor to, what would they be, and why?
(JW): I have competitively-driven information anxiety, and I am insatiably curious. I feel extraordinarily lucky to be alive, and free to be skeptical and not live in an oppressive society where I have to abdicate reason. I am drawn to non-fiction writers that have polymathic interests in pursuit of truths and deeply research connecting disciplines and reasoning by far analogies between them. If you take books like David Deutsch’s “Beginning of Infinity”, Eric Beinhocker’s “Origin of Wealth”, “Complexity” Mitchell Waldrop, Steven Pinker’s “How the Mind Works”, and EO Wilson’s “Consilience”––each connect multiple disciplines, break down silos, seek universal truths, and look at emergent phenomena between the hard and social sciences from psychology to evolutionary biology to physics and the arts. I love finding constants across fields, and the one that I am probably most obsessed with is entropy and nonequilibrium systems. The latter flies in the face of most economics and finance theories as well as many valuation and risk techniques, from mean-variance theory to capital asset pricing model to VaR (value at risk) to “beta”––that is premised on theoretical ideas that really don’t hold up in reality. On entropy––it’s the one rule to rule them all, the Second Law of Thermodynamics––that all systems trend to disorder without a constant input of energy. Simplified you can see this in trivial things like a bedroom or office that gets messier without energy to clean it up, interpersonal relationships that require attention and emotional investment, resources and capital needed to fuel and sustain companies whether generated internally from operations or raised externally from investors, formations in nature from whirlpools to hurricanes, and most interestingly to me in markets where there are imbalances that lead to booms and bubbles and bursts and busts.
2. The Crypto team from Brevan Howard were on the Empire podcast discussing their 10 Investment Themes for 2023. They covered the future of NFTs, gaming, trading infrastructure, stablecoins, regulation, AppChains and more.
Key parts are: (11:59) Brands, NFTs and Polygon's Lead, (25:31) Gaming Studios Will Integrate NFTs, (38:08) Gaming Interoperability, (49:38) Changes to Market Trading Infrastructure, (1:14:40) 2023’s Prevailing Narrative.
3. A new generation of anti-obesity medications are displaying striking results: drastically diminishing weight, without the serious side effects of previous medications.
4. Has first person to live to be 150 been born? The Harvard Gazette had an interview with David Sinclair, where he outlined recent research on altering molecules that turn DNA on, off and reset cellular aging.
If you are new to David’s work, this is a good place to start. Thank you Xavier R for sharing.
GAZETTE: This research shows that, in addition to the understanding that aging results from DNA mutations, it also comes from degradation of the epigenome. Could you just briefly explain what the epigenome is and whether this is potentially good news for the aging field?
SINCLAIR: The older idea is that mutations drive aging and, if that’s true, the problem for age reversal is that mutations are very hard to fix. You’d need to repair trillions of them in the body to reverse aging. Instead, we think that it’s mostly due to the loss of epigenetic rather than genetic information, which is great news because we’ve also discovered that there’s a backup copy of the epigenetic information in every cell. So, instead of aging being a hardware problem, similar to having an old computer, we are discovering that it’s a software problem and you can reboot the software of an old computer and make it run like it’s new again.
GAZETTE: What is the relationship between your findings and things known to be anti-aging, like exercise and calorie restriction, which also have epigenetic effects. Are we seeing tips of the same iceberg or are these effects very different?
SINCLAIR: They’re manifestations of the same process. We actually showed in 2003 — a Nature paper on yeast — that the environment links to aging through longevity chains, the sirtuins, which are controllers of the epigenome. So, in yeast, we knew that. Now in mammals, what we know is that there are three sirtuins in the nucleus that help with DNA repair as well as epigenomic stability. And when you exercise, when you don’t eat three meals a day — you fast — and even if you have high temperatures and low temperatures, that stimulates the sirtuins to be more active. And we know that that can stabilize the epigenome.
GAZETTE: Do you still look at aging as inevitable?
YANG: I think it is inevitable. Entropy always wins. It’s a law of physics. At some point, we should die, but it shouldn’t be too early. These technologies are developing now, and the speed of development is getting faster and faster. So, I don’t think it’s far away that people will live to 150.
5. Many people have read AI Superpowers by Kai-Fu Lee. My favourite section was when they compared US vs China’s approach to business building, data and AI.
This Business Breakdowns on WeChat with Connie Chan a General Partner at Andreessen Horowitz is a deep dive on not just on WeChat but also on how this core of Chinese internet life is built so differently from the tools we use in the West.
Have a great weekend. I was on the road mid-week and am very thankful that I got to visit one of my favourite places.
Thank you Zvi for the reminder of just how amazing it is.