A Few Things: Gell-Mann Amnesia, Extending Healthspan, The Intersection of Technology and Life Sciences, Where Are We Headed In Ukraine Conflict, Papic on Saudi Arabia, Charts You Might Have Missed...

February 25, 2023

Feb 25

I am sharing this weekly email with you because I count you in the group of people I learn from and enjoy being around.

You can check out last week’s edition here: Narratives on Wall St, Invisible War, Marko's Latest, US Head Fake, Change The Way You Work, What are LLMs good for, What's Next for LLMs, How to Invest In AI, News You Missed....

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Quotes I’m Thinking About:

“That man is the richest whose pleasures are the cheapest.”

- Henry David Thoreau

“Success consists of going from failure to failure without loss of enthusiasm.”

- Winston Churchill

"What you do on your ordinary days determines what you can achieve on your extraordinary days."

- James Clear

"One day you will wake up and there won’t be any more time to do the things you’ve always wanted. Do it now."

- Novelist Paulo Coelho on taking action

“Perseverance is a great element of success. If you only knock long enough and loud enough at the gate, you are sure to wake up somebody.”

- Henry Wadsworth Longfellow

A. A Few Things Worth Checking Out:

1. Whenever I’m consuming any kind of media, I think about Gell-Man Amnesia.

Here is the author Michael Crichton explaining it:

“Briefly stated, the Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the “wet streets cause rain” stories. Paper’s full of them.
In any case, you read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read. You turn the page, and forget what you know.”

I’m sure you have read an article about something you know a lot about, and reading the article you can tell that it is simply wrong. Not just wrong in minor detail, but wrong in motivation, cause, implication, fundamental facts.…everything. You read it and you think, “how can I get this travesty of an article edited/retracted/rewritten? how is it possible that the writer got this situation so wrong?”

And yet, despite having this searing experience with news articles where we actually have meaningful personal knowledge, we believe without hesitation the next story we read where we don’t!

This is Gell-Mann Amnesia.

Often what we read in the media is about narrative creation. About the story of the day or month, facts be damned. It’s not that anyone is trying to lie to you as much there is a narrative out there and stories are written with people who don’t know the full facts to go along with this narrative.

For me it means to consume EVERYTHING with a critical eye.

P.S. It actually has nothing to do with Murray Gell-Mann the physicist except that Crichton used him as the example when he created the term.

2. Extending our Healthspan is important to me. My kids make fun of me whenever I talk about all of us living to a healthy 150.

To go deep into this subject, Sultan Meghji was on the In Search of Green Marbles podcast discussing Longevity and Healthspan. Part 1, Part 2.

The discussion is less about the latest drugs coming down the pipe and much more the convergence of AI and Health. They discuss everything from diagnostic tools to the Vagus Nerve to HRV (heart rate variability).

Super useful and practical discussion of a lot of tools and protocols we should all be using to extend our Healthspan.

3. The last 20-30 years of technology investing were all about the Internet. It connected the world, set data free, produced all sorts of B2B and B2C business models…..But I think the next 30 years are going to be about the intersection of life sciences and software.

This means everything from better drug development process to improving the laboratory wet bench. We are going to go much deeper into understanding and optimising all aspects of what it means to be human.

Few are investing at this intersection.

One of those firms is Dimension Capital, which I’ve heard about from two investing friends and this podcast with the team is a good discussion of what the opportunity set looks like at the interface of life sciences and technology. Their website is also packed with goodies.

The podcast is packed with insights and I’m listening to it twice. Thank you Leila Z for flagging.

An example of the sorts of innovation possible is this MIT Technology Review article: AI is dreaming up drugs that no one has ever seen.

Key bits:

Computational techniques like molecular modeling have been reshaping the drug development pipeline for decades. But even the most powerful approaches have involved building models by hand, a process that is slow, hard, and liable to yield simulations that diverge from real-world conditions. With machine learning, vast amounts of data, including drug and molecular data, can be harnessed to build complex models automatically. This makes it far easier—and faster—to predict how drugs might behave in the body, allowing many early experiments to be carried out in silico. Machine-learning models can also sift through vast, untapped pools of potential drug molecules in a way that was not previously possible. The upshot is that the hard, but essential, work in laboratories (and later in clinical trials) need only be carried out on those molecules with the best chances of success.
Crucially, simulation allows researchers to zip past a lot of the messiness that generally characterizes the drug design process. Companies traditionally create batches of molecules they hope have certain properties and then test each in turn. With machine learning, they can instead start with a wish list of basic characteristics—encoded mathematically—and produce designs for molecules that have those properties at the push of a button. This flips the early phase of development on its head, says Salter-Cid: “It’s not something we used to be able to do at the beginning.” A company might ordinarily make 2,500 to 5,000 compounds over five years when developing a new drug. Exscientia made 136 for one of its new cancer drugs, in just one year.

4. This is one of the best place I’ve found to discover old interviews. While the rest of the Internet is focused on the here and now, this YouTube channel offers a chance to disconnect from the never-ending now and explore the wisdom of brilliant but oft-forgotten figures.

Some that I am checking out:

5. It's been one year since Russia invaded Ukraine in an event that set off a chain reaction of both geopolitical and economic consequences. So what have we learned from the past twelve months? And what is the future of this ongoing conflict?

On this Bloomberg Odd Lots episode, they spoke with Robert Papp, a retired senior executive at the CIA about what to watch when it comes to the weeks and months ahead. Before joining the CIA, Robert was a cryptologist in the US Navy and also studied Russian and Russia's economic history. He walks us through key questions, including how things are going for either side, and the role of both economic and information warfare in the conflict.

I listened to this twice, lots of practical wisdom and no big predictions or prognostications, especially the bits around views on the war from the “Global South”. Thank you Pavel V for sharing.

6. I was catching up a few friends that are spending more time in Saudi Arabia witnessing the renaissance taking place.

It made me go re-read this recent one by Marko Papic at Clocktower Group.

Are you looking at the investment opportunity in Saudi Arabia and how?

7. Arjun Murti was the Goldman Sachs “Super Spike” analyst from the 2000s commodity bull market era. He retired as a partner in 2014 after 22 years as a sell- and buy-side energy equity research analyst at Goldman Sachs, J.P. Morgan Investment Management, and Petrie Parkman & Co.

His blog - Super-Spiked takes aim at what looks like an increasingly messy energy transition by examining the clash of energy commodity & equity markets with climate policy, ESG investor initiatives, and geopolitics.

He shared on his latest titled the Evolution of a Structural Bull Market.

Some key bits:

Phase 1: Rally Off Trough

Costs are low, CAPEX is low.
Beginning valuations assume trough conditions continue into perpetuity.
Commodities surprise to the upside.
Deep value investors dominate and demand discipline, debt paydown, max dividends/stock buybacks, and no growth operating philosophies.
This is the October 2020 - June 2022 period.

Phase 2: The Transition

The capital spending cycle begins, inflation returns, costs rise.
Inevitable commodity volatility creates cycle duration uncertainty.
Deep value investors are selling the sector; mainstream funds are nibbling but are not fully back-in.
This is what we have been experiencing since mid-2022: "See, I knew I couldn't trust this sector to generate sustainable outperformance. Back to growth tech!"

Phase 3: The Long And Winding Upcycle

It turns out it wan't "over" for the commodity cycle.
Differentiation between good and bad companies becomes more noticeable, even if at times ignored.
Returns on capital overall remain at healthy levels.
Capital flows back into the sector to fund growth and acquisitions.
The sector's weighting in the S&P 500 makes a big move up.
Mainstream funds and GARP investors have returned to the sector.
There will be plenty of mini-cycles along the way.

Phase 4: The Peak

Commodity prices may still be rising, but ROCE is starting to seriously erode relative to commodity prices.
Sector valuations inflate as above-normal conditions are normalized.
Energy is in vogue: Tech sector royalty (i.e., PMs) sit in on energy sector analyst and company meetings.
Energy as a viable investment sector is dead man walking.

Phase 5: Decay, Death, and a New Structural Downcycle

We all lived through this over 2010-2020.
I don't believe further explanation is needed.

What areas look interesting and under-appreciated

A partial list of areas I find interesting (feedback welcomed):

Long-cycle oil in geopolitically friendly countries: e.g., Canada's oil sands region
Middle East mega projects (fiscal term dependent): Oil and natural gas/LNG
Natural gas/LNG trading
Low decline PDP oil reserves in the U.S.
Non-OECD domestic coal (thermal and metallurgical)
Industrial technologies (hardware and software) aimed at improving energy efficiency
Nuclear value chain
Powering Africa

Areas that look overhyped:

The Hydrogen Economy: the colors are dumb…this will have a chance once the world shifts to looking at characteristics not colors.
Renewables without storage and other needed infrastructure costs included. Is there a reason LCOE doesn’t include all the costs? Feels a lot like the shale “Well IRR” debacle, but with much worse societal implications.
EVs. Note: I expect EV sales to achieve meaningful growth in coming years, just not the hockey stick upsides that seem embedded in consensus.

B. News & Charts You Might Have Missed

1. Credit Suisse produces this annual Investment Returns Yearbook. Its 240 pages of great charts and insights.

These are some charts that stood out:

2. This is great and I wonder why?

3. Technology is providing us leverage.

C. The Tech Section:

1. Ben Evans always has a good pulse on all things tech. He had a great new deck titled: The New Gatekeepers. Here are some slides that stood. Thank you David G for flagging.

Thank you for reading!

A Few Things....