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A Few Things: The Future of Net Zero, Marko Papic's Latest,Le Shrub on Hidden Forces, Grain Brain, What I Learned About Investing from Darwin, Superconductor 101....
August 7, 2023
Hi, I’m Ahmed Husain, founder of A Few Things. Every week, I share my view on developments across markets, technology and being a better human. I advise and work with global family offices and investors looking to understand the world and find investment opportunities.
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: Quotes I am Thinking About, Transformative Ideas, How To Live An Asymmetric Life, Position Yourself for Success, Die With Zero, Founders...
Believe it or not, that “♡ Like” button is a big deal – it serves as a proxy to new visitors of this publication’s value. If you enjoyed this, don’t be shy.
This week’s email is a little early since I had a bit of spare time to write sooner.
Quotes I Am Thinking About:
"One day, in retrospect, the years of struggle will strike you as the most beautiful."
- Sigmund Freud
“Civilisation is a movement and not a condition, a voyage and not a harbor.”
- Arnold Toynbee
"Goals are for people who care about winning once. Systems are for people who care about winning repeatedly."
- James Clear
"The opinion of 10,000 men is of no value if none of them know anything about the subject."
- Marcus Aurelius
“You must be prepared to work always without applause.”
- Ernest Hemingway
“If you are not yelling at your kids, you are not spending enough time with them.”
- Reese Witherspoon
A. A Few Things Worth Checking Out:
1. The narrative on net zero and ESG seems to be turning. Two pieces for your attention.
A. Professor Helen Thompson at Cambridge University and author of the book Disorder: Hard Times in the 21st Century (that we covered last year here) wrote a short piece for the Sunday Times titled: Why net zero requires a reinvention of civilisation.
Key bits, emphasis mine:
Fossil fuel energy has been the material basis of modern civilisation. The Industrial Revolution was the start of an energy revolution that transformed how human beings could live. Today the four basic physical pillars of our society — ammonia, cement, plastics and steel — are largely produced using fossil fuels. So net zero requires reinventing modern civilisation. It requires transforming the energy basis of our way of life within less than three decades. There is no precedent in human history.
If that were not challenge enough, the net zero 2050 project is defined by a foundational tension: its target involves carbon emissions, not the realisation of an energy revolution. It was never specified how much of the work in achieving the emissions target should be done by the energy change and how much by removing carbon dioxide from the atmosphere. The other open question is: are oil, gas, and coal to be replaced as primary energy sources by electricity or by hydrogen or a combination of both when they require entirely different infrastructures?
When it was first legislated for in 2019, net zero constituted an act of faith in technological innovation.
In light of the scale of the undertaking, it is extraordinary that the net zero legislation passed through parliament with so little contest in the dying days of Theresa May’s government, when the country was still politically consumed with the question of whether the UK would actually leave the EU.
Net zero served another purpose for British politicians in 2019, as elsewhere in Europe: after a decade of economic stagnation and the shock of the Brexit referendum, it doubled as a growth strategy and an industrial reset for the country’s former manufacturing heartlands. Unlike North America, Europe is a resource-poor continent. A reliable supply of the metals and minerals required for low-carbon infrastructure will depend on a geopolitical strategy to tackle growing resource nationalism in Latin America and Africa as well as China’s dominance of metal processing and rare earth elements. The US Inflation Reduction Act passed last August further constrains what is possible in Europe because its protectionist provisions will pull low-carbon investment capital across the Atlantic and incentivise some metal-rich economies like Australia to strike bilateral deals with Washington.
The US also does not have to engage with the same level of fossil fuel energy costs as European countries because of its own supplies….Since to be rich is to be energy-rich and to be poor is to be energy-poor, energy insecurity incites conflict over distribution.
The reality that net zero is disruptive to the status quo is becoming clear. Underneath net zero — although not spelt out in 2019 — is a call for voters to adapt to a new energy world that is unlikely to replicate the fossil fuel one. Politicians accustomed to a world in which energy abundance could be taken for granted will be prone to panic in this novel one.
Already there is a shift to saying aloud that fossil fuel energy security still counts: last week the prime minister announced that the government would grant new licences to drill for oil and gas In the North Sea.
In this respect, net zero was supposed to help contain geopolitical competition over fossil fuels, not to intensify it by creating an even sharper hierarchy of states who can rely on them. Whether net zero is challenged or not, politicians and voters will have to learn to live with a constant contest over energy. We are in a world of permanent energy politics.
B. Rebranding ESG won’t save it from its internal contradictions by Stuart Kirk in the FT.
Key bits, emphasis mine:
More than half a decade before its latest rebranding, I gave a speech in Berlin about environmental, social and governance investing.
It forewarned that ESG (as a desired output of investing, not an input) had an existential problem due to three inconsistencies at its core. At the time I argued they were reconcilable. Recent events suggest not.
Take Monday’s announcement by the UK government confirming hundreds of new North Sea oil and gas licences. Whether for reasons of energy security or political expedience, the move now directly contradicts the fossil fuel policies of many banks.
My point is not for the funding of new oil and gasfields — although to my mind the International Energy Agency’s projections are clear that a worldwide path to renewables still requires spending on new fields given that existing ones decline at 8 per cent per annum.
No, what I said in my speech is that moral high grounds invariably crumble — mostly due to changes in scientific knowledge, attitudes, money or politics. Even Joe Biden demanded that big oil companies in America get pumping when rising fuel prices risked three congressional elections last year.
In one slide I mocked-up a newspaper with the headline “Investment Industry Treason”. The article beneath was about local fund managers who refused to invest in arms manufacturers on ESG grounds despite a build-up of enemy forces on the border. Then “tanks rolled into the east of the country . . . ”
War of course is an extreme example of how norms shift. Cluster bombs, which are back in the news, were banned in every equity portfolio I have ever managed. But today Ukraine drops them in the name of freedom. Divestment is suddenly appeasement.
Unless investors can see the future, therefore, this problem is intractable. Likewise, ESG’s second fatal inconsistency: knowing where to stop. If a miner of coal is unsustainable then so is the truck company hauling the stuff. And why not its tyre supplier or the rubber maker? Throw in their accountants too.
This is no hypothetical. Next year, for example, European firms with more than 500 employees will be forced to collect environment, social and governance data on every single company up and down their supply chains.
Yes, seriously. But wait. In 2025, these rules apply if you have a minimum of 250 staff.
Death by fatuous and incomparable data. And somebody has to arbitrarily decide the relative weightings between “E” or “S” and “G”. This is the final inconsistency I raised in my speech: that everyone has their own view on what is good and bad.
Why are huge efforts made to exclude tobacco stocks from portfolios but not food companies who overload our meals with sugar, salt and saturated fats? Beats me. Nearly half a billion people suffer from type 2 diabetes around the world. It is in America’s top 10 causes of death.
Or how come we hold companies to account over diversity and not work-related mental illness, which makes up half of all days lost to sick leave? Some investors care about governance, others homelessness outside their office.
Uncertainty has always been the mortal enemy of investing. And few ideas are more inconsistent, and thus uncertain, than ESG — no matter how you brand it.
This was is original speech while he was employed at HSBC as head of responsible investment, that got him fired:
2. Tim Harford (the Undercover Economist) had a useful and philosophical piece in the FT titled: The inconvenient truth about productivity.
Key bits, emphasis mine:
So, I wondered, what are the secret principles, the deeper truths, the underrated ideas that might help us all get more done, with less anxiety, in less time? I suggest three ideas. None of them is heretical but each seems under-appreciated.
First, look ahead. Look ahead further, and more frequently and more thoughtfully, than seems sane. Start by looking at tomorrow’s calendar at the end of each day before you draw up a list of things to do. On Friday afternoon, look at next week’s calendar — and the week after that. Where are the pinch points? Is there anything you need to do to prepare for the meeting, the party or your wedding anniversary?
David Allen, author of the crunchy-yet-brilliant Getting Things Done, advises that you keep looking further and further ahead until tasks no longer pop into your head as you do. You may be surprised at how much occurs to you during the diary-driven attempt at foresight.
Cal Newport, author of Digital Minimalism, advocates making a quarterly plan containing the broad outlines of what you hope to achieve in the next three months and reminding yourself of it each week.
Allen also advises a full “weekly review” not only of the diary ahead but the diary behind, along with tasks, projects and sundry scribbles on Post-it notes. This weekly review is arguably the cornerstone of his entire system. It’s also the step that people are most tempted to skip.
Looking ahead matters for all the obvious reasons, but there is a hidden benefit, too. You feel calmer when you know — rather than just hope — that you are aware of what predictably lies ahead. And if you get into the habit of checking your calendar and your lists of tasks, you are more likely to trust them. This allows you to write things down and then relax, knowing you’ll be reminded of them at the appropriate moment.
Second, clarify. Far too many things linger in the inbox or on the desk because we fail to take the moment required to think about what they are. Does this need to be archived for reference? (Usually not.) Does it need to be simply deleted? (Very often, yes.) Is a simple, one-shot action required? (If yes, maybe do that immediately.) Or is there something more complicated implied? (If so, take a minute to think about what steps might be involved and write them down.)
It is astonishing how much work, clutter or vague anxiety can accumulate simply because we hesitate to take this quick step of clarifying our thoughts.
Does this really matter? Yes it does. I was staggered to discover that not only does my esteemed colleague Pilita Clark have more than 100,000 unread emails, her friends and colleagues have 300,000 or 400,000. How does this happen, I asked myself?
Then I realised the answer. If you keep looking at incoming emails and thinking, “Hm, I’m not sure what to make of that,” you’ll eventually get to 400,000. It is simply the accumulated result of 400,000 individual failures to make a decision.
Third, be content. There is an endless temptation to believe that at some stage you’ll get on top of all the tasks, that you’ll clear the decks, and then at that point you’ll either be able to get on with the real work or rest. These goals are mirages. You’ll never clear the decks; there will always be more to scrub and tidy. Let’s not volunteer for the role of Sisyphus: “Yes, I will book a holiday and begin writing a novel, but first let me just roll that boulder up the hill one more time.”
Or, for a more philosophical take on much the same idea, Oliver Burkeman builds on a line from the Argentine writer Jorge Luis Borges: “Time is the substance I am made of. Time is a river which sweeps me along, but I am the river.”
In that case, says Burkeman, in his delightfully wise book Four Thousand Weeks, stop yearning for the moment when you’ll grasp a handhold on the bank, climb out of the river, and relax as you watch it flow by. You are the river. Don’t waste the journey dreaming of the riverbank.
3. My favourite market strategist Marko Papic shared his recent piece, here’s the summary:
4. In Episode 322 of Hidden Forces, Demetri speaks with Le Shrub, an anonymous Twitter (one of my top 5 follows), who always has sharp, succinct and insightful market commentary and trades.
Le Shrub (who is an ex-HF PM and now a Family Office CIO in Monaco) and Demetri spend time discussing his investment philosophy, and his process for coming up with new trade ideas, as well as his experience shorting the housing market in 2008 as part of a famous team known for doing “The Big Short.” What he learned from that experience and how it applies to today’s markets is also part of that conversation.
The rest of the episode including the second hour is a deep dive into many of the topics that are top of mind right now for investors and policymakers alike. Demetri and his guest discuss the divergence between bonds and equities, the bull and bear cases for commodities, the fate of emerging markets, the bull and bear cases for different European economies, China, gold, the US Dollar, and of course, no conversation is complete today without a discussion about the investment implications of A.I., and yes, Aliens.
Hidden Forces is one of those podcasts that I pay for.
5. Great Binocular of Risks and Opportunities (BRO) by my friend Bobby Vedral.
6. Will We See Another ‘Big Short’? Seawolf’s Vincent Daniel And Porter Collins, of the Big Short fame (they were partners in Eisman’s Frontpoint fund) were on the Acquirer’s Multiple podcast, some highlights:
The Next Big Catalyst For The Fed - Employment
Alibaba Represents Good Value
Leading Indicators Flashing Yellow
Fed’s Actions Have Papered Over A Lot Of Cracks
Bullish On Offshore Rigs and Uranium
7. A reminder to get out there and experience reality.
8. The entire family enjoyed this last week. It’s both funny and serious. Amazing acting by the entire cast.
B. Grain Brain
Does eating bread and pasta make you feel groggy and slow. Does eating processed foods irritate your stomach? I think we may look back at the amount of sugar we ate and let our children eat and regret it.
"Grain Brain" by neurologist Dr. David Perlmutter (first written in 2013 and updated in 2018), offers an analysis into the relationship between dietary choices and cognitive health, grounded in scientific inquiry.
Dr. Perlmutter theorises that reducing carbohydrate consumption while embracing a higher intake of beneficial fats may potentially lead to cognitive advantages.
There's a key player in this story: gluten. Dr. Perlmutter talks about how gluten, a protein in wheat and other grains, could be linked to brain issues. He suggests that being sensitive to gluten might not just upset your stomach, but could also affect your brain.
I’ve heard many anecdotal stories about women cutting their bread intake and it changing their brain fog.
Central to Perlmutter's hypothesis is the notion that excessive carbohydrate intake, particularly those derived from grains, can lead to heightened blood sugar levels and subsequent inflammation, which may detrimentally impact brain function.
A study cited in the book reveals that high carbohydrate consumption can result in an upsurge of glycation end products that, in turn, might contribute to cognitive decline.
The book is split into 3 parts:
Part 1: Discusses Inflammation, Gluten and Sugar
Part 2: Discusses changes in diet, exercise and sleep for optimal brain function
Part 3: Breaks out a plan of action, food and recipes
However, the "Grain Brain" narrative has met with criticism, for example some claim indispensable nutritional components present in whole grains, such as dietary fiber and essential vitamins.
Three things I am doing differently after reading the book:
For the last 10 years I’ve been watching my simple carbohydrate intake, and this just makes me want to cut it further. Need to particularly mindful around snacking.
Look out for lower sugar fruits and ways to add good fats to diet (Omega-3 vs Omega-6).
Remind myself to eat more probiotic, gut biome helpful foods - fermented stuff for example.
If you just have 5-mins, this is a good video to give you an overview of Dr. Perlmutter’s work:
And if you have an hour then watch this (it has 3MM views):
C. What I Learned About Investing From Darwin
What I Learned About Investing from Darwin is a book by Pulak Prasad (ex Warburg Pincus), the founder of Nalanda Capital, a Singapore-based firm that invests in listed Indian equities and manages about $5 billion.
The book offers a philosophy of patient long-term investing based on an unexpected source: evolutionary biology.
Pulak argues that investors should focus on finding and owning high-quality businesses that can survive and thrive in a changing environment, rather than chasing short-term gains or following the crowd.
He also advises investors to be patient, disciplined, and lazy, meaning that they should do their homework before investing and then let their investments compound over time.
Three main themes of the book are:
Investing is a process of adaptation and survival in a changing environment. Just like biological organisms, businesses and investors need to adapt to changing market conditions, customer preferences, technological innovations, and competitive pressures. Those who fail to do so will be eliminated by natural selection, while those who succeed will thrive and grow.
Investing requires patience and discipline. Darwin spent years observing and collecting data before publishing his groundbreaking work On the Origin of Species. Similarly, investors need to spend time researching and analyzing potential investments before making decisions. They also need to resist the temptation of short-term gains and stick to their long-term strategy.
Investing involves trade-offs and opportunity costs. Darwin realised that every organism has limited resources and must allocate them wisely to maximise its fitness. Likewise, investors have limited capital and must allocate it wisely to maximise their returns. They also need to consider the opportunity cost of every investment, which is the return they could have earned by investing in something else.
A good example in the book uses Pavlovian dogs to demonstrate how some animals can develop conditioned responses to certain stimuli. He compares this to how some investors can fall prey to cognitive biases and emotional reactions that can impair their judgment and decision making. He cites examples of such biases from his own experience, such as confirmation bias, anchoring bias, loss aversion, and herd mentality. He also shares his own mistakes and regrets as an investor, such as selling his stake in Infosys too early or missing out on investing in Google.
Another example is that of sea urchins to explain how some organisms can survive in harsh environments by developing specialised adaptations. He compares this to how some companies can create a strong competitive advantage by developing unique capabilities or products that are hard to replicate by others. He cites examples of such companies from his own portfolio, such as Page Industries, the exclusive licensee of Jockey underwear in India, which has created a loyal customer base and a dominant market share by offering superior quality, comfort, and fit.
What am I going to do differently after reading the book:
Say “NO” to even more things and develop and exclusion framework. Focus and know the Return on Capital Employed (ROCE) for my businesses. Then stack on good balance sheet and management, a fragmented customer and supplier base, competitive advantage in a slow changing industry.
Before thinking about the future of the business, deeply study its history. What has brought the business to where it is today. What are the decisions embedded in this businesses.
Assume that companies are out to fool me with false signals. Look for true quality not impersonators.
Work to own the real quality businesses for long periods of time. Find ways to be lazy when you own the great businesses. The goal is have 10x returns not lots of 20-30%. Very few businesses can deliver 10x returns.
Sell when one of three things happen: a) decline in governance b) bad capital allocation c) irreparable damage to the business.
Unfortunately, Pulak is media shy, so there are no videos or podcasts of him. You’ll need to either be satisfied by my summary or read the book yourself.
D. The Technology Section
1. Feels like technology is moving faster than ever these days. We have gone from discussing AI, Nuclear Fusion and now Superconductors...(am skipping alien spacecrafts ;-)). Here's what I learnt about superconductors this week, sharing so we have some building blocks to work with:
First some history....Superconductivity was first discovered in 1911 by Kamerlingh Onnes, when he found that the resistance of mercury dropped to zero below a critical temperature of 4 Kelvin (-269 °C). Scientists have discovered many other superconducting materials, but most require extremely cold temperatures.
Superconductors have a range of applications due to their ability to conduct electricity with virtually no resistance. Current high-temperature superconductors can operate at temperatures up to around -140°C. Room temperature superconductors operating at 0-30°C could remove this cooling requirement.
Researchers have published preprints claiming that a material called LK-99 exhibits superconductivity at temperatures as high as 250K (-23 °C), a potential game-changer given its ability to conduct electricity without resistance. This discovery (if validated) could revolutionise various technologies.
The material is a compound of lanarkite (lead and sulphur = low cost) and copper phosphide, synthesised through a complex process. The implications are vast: including lossless power transmission, maglev trains, medical imaging, stable quantum computers, faster electronics, cheaper renewable energy and other domains.
Challenges still exist, such as limitations in power handling capacity of the material, potential defects in wire form, toxicity concerns due to the presence of lead in LK-99. But even with these challenges, LK-99 could contribute to advancing the understanding of superconductivity and lead to the discovery of even better materials.
The Meissner effect: is a fundamental phenomenon in physics that occurs when a material undergoes a transition to a superconducting state, where it exhibits two main characteristics: a) expulsion of magnetic fields - this is why you see these videos of floating LK-99 above magnets and b) perfect conductivity.
Believe it or not, that “♡ Like” button is a big deal – it serves as a proxy to new visitors of this publication’s value. If you enjoyed this, don’t be shy.
Gene Roddenberry, television screenwriter and creator of Star Trek, on the value of reading books:
"I consider reading the greatest bargain in the world. A shelf of books is a shelf of many lives and ideas and imaginations which the reader can enjoy whenever he wishes and as often as he wishes. Instead of experiencing just one life, the book-lover can experience hundreds or even thousands of lives. He can live any kind of adventure in the world. Books are his time machine into the past and also into the future. Books are his "transporter" by which he can beam instantly to any part of the universe and explore what he finds there. Books are an instrument by which he can become any person for a while—a man, a woman, a child, a general, a farmer, a detective, a king, a doctor, anyone.
Great books are especially valuable because a great book often contains within its covers the wisdom of a man or woman's whole lifetime. But the true lover of books enjoys all kinds of books, even some nonsense now and then, because enjoying nonsense from others can teach us to also laugh at ourselves. A person who does not learn to laugh at his own problems and weaknesses and foolishness can never be a truly educated or a truly happy person. Also, probably the same thing could be said of a person who does not enjoy learning and growing all his life."