
Discover more from A Few Things....
A Few Things: Dan Ariely on Human Capital, Marko Papic on Markets, The Halfways, Vaclav Smil on How The World Really Works, Sebastian Mallaby on Crypto, The Next Renaissance.....
July 7 2022
I am sharing this weekly email with you because I count you in the group of people I learn from and enjoy being around.
“During times of universal deceit, telling the truth becomes a revolutionary act.”
- George Orwell
“The more you seek the uncomfortable, the more comfortable you will become.”
- Conor McGregor
“The truth is not for all men but only for those who seek it.”
- Ayn Rand
“Doing nothing is better than being busy doing nothing”
- Lao Tzu
“The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come.”
- Confucius
“Here we are on top of the world. We have arrived at this peak to stay there forever. There is, of course, this thing called history. But history is something unpleasant that happens to other people.”
- Arnold Toynbee, recalling the 1897 diamond jubilee celebration of Queen Victoria
In case you missed last week’s email.
A. A Few Things Worth Checking Out
1. Professor Dan Ariely was on the Meb Faber show, discussing Human Capital. My favourite Dan Ariely book is Predictably Irrational, which I highly recommend.
They discussed a bunch of new behavioural finance insights, including how we can reframe the nature of saving money (make the invisible, visible), why financial advisors should stop asking their clients about their risk tolerance, and how Dan would approach fixing the American retirement system (annuities).
A great idea around payments you want to reduce is to increase pain, increase friction. Pay in cash rather than credit.
They then had a great discussion on the Human Capital Factor. Quoting from their press release on work they did with JP Morgan:
This report, entitled “Introducing the Human Capital Factor”, explores the connection between the Human Capital Factor and excess returns. Of particular interest, the report notes that the unique traits captured by the Human Capital Factor are “extremely likely to be the greatest asset and resource companies possess.”
The report found that the Human Capital Factor “strictly dominates all [other investment] styles across all metrics” and yielded the highest returns, lowest volatility, highest Sharpe ratio, highest hit rate and lowest maximum drawdowns when compared to Value, Growth, Momentum, Quality and Risk investment styles.
Link to original Dec 2021 report and then Jan 2022 report.
This is real, thoughtful work, and not just a tick the box exercise that so much of ESG has become.
For example (and this is just one of their findings) they found that businesses where employees felt valued and that their contribution mattered performed better than the stock market.
Even if you approach the market quantitatively, using Human Capital as a factor should drive returns.
Thank you Bjorn T for flagging. This one is worth two listens.
2. My friend Marko Papic at Clocktower has been stating for a while now that Oil prices would correct lower given both slower demand and less risks to supply than the market is pricing in. Given the correct in Oil over the last week, does this soon give the FED an excuse to back off?
He thinks the inflection point for a long Bond / short Commodities trade happened in June and he sees more upside ahead as the FED backs off and inflation rolls over. This could then lead to a rally across asset prices.
3. There is a lot going on in global markets, but in the end, the market is trying to price two big ideas: a) will we have a recession in 2022 and how bad will it be? b) in the face of that recession will the FED keep tightening to fight inflation?
The answer to those questions will determine where you invest, at least in the near term.
This GaveKal graphic lays it out simply and comes to a different conclusion than Marko.
4. My wife Nilopar Uddin’s book: “The Halfways” is now out, and it just won a Book Of The Month award.
I hope you will get a chance to read it this summer.
Thank you to everyone sending screenshots of their purchased copies. It means a lot.
5. I shared what we are seeing from our European Family Office clients on LinkedIn.
Disclaimer: I certify that these are my personal views at the time of this post. My views are my own and not attributable to any affiliation, past or present. This is not an investment newsletter and there is no financial advice explicitly or implicitly provided here. My views can and will change in the future as warranted by updated analyses and developments.
B. How The World Really Works:
Vaclav Smil’s latest, How The World Really Works should be assigned reading for every adult. It’s a simple, no politics, no bias discussion of how the world works.
The 5 big ideas I got out of the book were:
1. Harnessing energy has been the most impactful event for our species. The amount of energy we now use as a species is astounding. That energy is used in things that are usually invisible to us. Think agriculture (fertilisers), cement, plastics, steel. Energy is in everything.
2. The great thing about Oil for our species was that it’s very energy dense. Fossil fuels today are 84% of our energy usage. Substituting that level of energy density is hard.
3. We have also had a tremendous degree of globalisation. This was built on the back of scaled transportation, communication, manufacturing and semiconductors. This was a huge force and has totally changed how the world works today versus a hundred years ago when most of these forces were limited or didn’t exist.
4. We worry a lot about risks like terrorism, viruses, revolutions. But the real risks for most of us are as simple as driving to work (traffic deaths) and gun violence (especially in America). Those are the risks we should worry about.
5. Climate models are complex and have many, many variables. It’s almost impossible to model scenarios for 2040, let alone 2100. If you want to help the environment today, then start with driving smaller cars, insulate your house and reduce food waste.
Here’s a great discussion on Energy Systems: Transitions and Innovations. Highly recommended:
C. The Tech and Crypto Section:
1. Sebastian Mallaby had a piece in the Washington Post on Why Crypto Will Rise Again. Key bit:
The real test for crypto is whether it creates services that non-crypto people care about. On this, the jury is still out, but the tentative evidence is promising. Digital tokens can create clever customer incentives — think a more sophisticated version of air miles. Crypto payments may generate cheaper ways to remit money across borders. Play-to-earn computer games, with digital assets that users stash in personal wallets, may bring a new dimension to the already vast gaming industry. Audius, a Spotify-type service, streams music that is stored on a blockchain.
Today’s internet renders frictionless the storage, transfer and sharing of information. Already, we cannot imagine life without it. Tomorrow’s crypto- and blockchain-enhanced internet may achieve the same for value. Legions of smart coders are working to realize this vision, and none can say what will result. But one thing is for sure: Financial markets are no more clairvoyant than the rest of us.
2. One of the ideas that really resonated with me when I first heard it was crypto and blockchains powering the next Renaissance. I still believe that.
Josh Rosenthal, historian and investor was on the Bankless podcast discussing his thoughts.
You can read a summary of the idea in this twitter post.


3. My friend Ram and his team at Octahedron Capital (disclosure: I am an LP in his fund) reads through hundreds of earnings transcripts and meeting notes. He recently published deck on “A Few Things We Learned in April – June 2022”. It’s a good read to see what companies are saying versus what you hear from Wall Street.
It’s hard and uncertain out there right now. Two things I read often in hard times.
Untethered Soul by Michael Singer:
There is nothing more important to true growth than realising that you are not the voice of the mind - you are the one who hears it. If you don't understand, you will try to figure out which of the many things the voice says is really you. People go through so many changes in the name of "trying to find myself". They want to discover which of these voices, which of these aspects of their personality, is who they really are. The answer is simple: none of them.
If you watch it objectively, you will come to see that much of what the voice says is meaningless. Most of the talking is just a waste of time and energy. The truth is that most of life will unfold in accordance with forces outside your control, regardless of what your mind says about it.....You will someday come to see that there is no use for that incessant internal chatter, and there is no reason to constantly attempt to figure everything out. Eventually you will see that the real cause of problems is not life itself. It's the commotion the mind makes about life that really causes problems.
Theodore Roosevelt:
It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.
Have a great weekend.