A Few Things: What I Learned from 2022, VALL-E not DALL-E, The Latest in Aging, The Great Front-Run, Founders, News You Might Have Missed...
January 14, 2023
Quotes I’m Thinking About:
"Leadership begins with your behaviour.
What’s more powerful? A manager or coach or teacher who tells you the right thing to do? Or one who shows you how to live and work by example?
People gravitate toward the standard you set, not the standard you request."
- James Clear
"Your task is not to seek for love, but merely to seek and find all the barriers within yourself that you have built against it."
- Clinical psychologist, Helen Schucman, on love
“The young man knows the rules, but the old man knows the exceptions.”
- Oliver Wendell Holmes
“Education is a progressive discovery of our own ignorance.”
- Will Durant
“We don't rise to the level of our dreams, instead we fall to the level of our training.”
A. A Few Things Worth Checking Out:
1. Loved this from my friend Bobby Vedral on What I Learned from 2022, because it clearly articulates the key narratives and themes of the world we are living in.
First, despite the doom & gloom, geopolitically it was a good year for the Liberal West: Ukraine/NATO weren’t as weak & incompetent as the Kremlin had expected. And looking at China’s self-inflicted Covid-chaos, the West’s performance suddenly looks relatively good.
Second, despite the above, don’t get complacent: the invasion has started a new era of great-power politics, which will make the 2020s very different to the previous decades of ‘one-world-kumbaya-investing’, as corporates move from “Just-in-Time” to “Just-in-Case” economics, supply chain “friend-shoring”, “cybersecurity” and more. Big opportunities by the way, but also big risks.
Third, inflation changes everything: rarely have so many asset classes been down at the same time and rarely have so many ‘hedges’ (Treasuries/Gold/Yen/even options) not worked. And while we might have seen ‘peak’ inflation, it is the ‘stickiness’ (around 3-4%) that will become the problem.
Fourth, in the future, avoid any strategy called ‘Zero something’ … as the U-turn will be brutal: “Zero Interest Rates” has led to asset bubbles, inequality, debt and laid the seeds for inflation. In Europe, “Zero Emissions” has led to an Energy Crisis. In China, “Zero Covid” is ending in tears. Bottom line: more “balance”, less maximalism.
Five, economic nationalism is back: as the idea of limited government is taking a beating, industrial policies are making a comeback and investors should take increasing notice. The ‘Fed Put’ is dead, long live the ‘Fiscal Put”.
2. How often do you hear good news on tv or read about how the world is becoming a better place?
Hans Rosling would have been proud of an article like 99 Good News Stories You Probably Didn't Hear About in 2022. It’s critical to remind ourselves that the world is constantly improving and that people like me and you can have an impact.
Here are my five favourite:
4. The US Supreme Court’s decision to overturn Roe vs. Wade was a huge setback for reproductive rights in the United States, but around the rest of the world, it was the opposite story. Colombia decriminalized abortion and India's Supreme Court upheld the right to choose for 73 million single women - the first time a legal question about abortion in India has been approached from a women's perspective.
13. Crime also fell in the United Kingdom. Compared with the year before the pandemic, burglary in 2022 was down 28%, robbery down by 23%, vehicles offenses have fallen by 19%, knife crime by 9%, firearm offenses are down 10%, and homicides have decreased by 5%. Overall crime is now at its lowest level since the 1980s. ONS
52. After three decades of inaction, the United States passed its first ever comprehensive climate bill in 2022, containing $369 billion in spending. It was the most significant climate news since China announced its net zero target, and in its aftermath, analysts started predicting 'staggering' amounts of clean energy deployment, with wind, solar and batteries accounting for over 95% of capacity in US interconnection queues.
74. One of the least celebrated stories of human progress? Fewer teenage girls as a proportion of the global population are giving birth today than at any point in human history. Oh, and 357 million women and girls are using modern contraception in low and lower-middle income countries, and in the last year alone, their use averted 135 million unintended pregnancies, 28 million unsafe abortions, and 140,000 maternal deaths.
82. The US Census Bureau reported that the poverty rate in America plummeted to 7.8% in 2021, and the number of children in poverty fell by nearly half. To put this in context - in 1993, one in four children lived in families living below the poverty line. 26 years later, that’s fallen to roughly one in ten. The magnitude of this decline is unequalled in the history of poverty reduction efforts in the United States.
3. Microsoft’s new zero-shot text-to-speech model can duplicate everyone’s voice in 3 seconds. Microsoft's VALL-E model can produce speech in any voice with just 3 seconds of training. The transformer-based model keeps the intonation, charisma and style of voice intact in the generated speech.
4. Can Aging be reversed? David Sinclair and a team of scientists published their work on the use of epigenetics to reverse aging.
Here are the highlights from their study:
Cellular responses to double-stranded DNA breaks erode the epigenetic landscape
This loss of epigenetic information accelerates the hallmarks of aging
These changes are reversible by epigenetic reprogramming
By manipulating the epigenome, aging can be driven forward and backward
And a Time Magazine article discussing the work (thanks Victor).
For those who want to dive deeper we discussed David Sinclair and his work, we last discussed it in March 2022, and we featured this talk:
5. An interesting thought experiment by Erik Renander titled: The Great Front-Run.
I try to be anti-fragile, therefore it is important to consider daily whether my world view is completely wrong, and it is with that idea I approach this piece.
This is neither my personal view or an investment recommendation.
Erik went through the annual reports of the following institutions:
The big, obvious, impossible to miss trend is the large and growing allocation to private equity and venture capital.
David Swensen is the famous CIO who ran the Yale endowment from 1985 until his death in 2021. His big innovation was that long term funds, like college endowments, should stay away from low return asset classes like fixed income and commodities and allocate heavily to equity related asset classes, especially private equity. Over time equities should outperform bonds and are better at providing protection against inflation.
The problem with the Swensen approach is that what was edgy and innovative 30 years ago has become crowded and consensus. Everyone is copying the private equity and VC overweight, which has created record inflows into the private equity asset class. Yes, it probably still works over the very long-term, but I think we’ve hit a multi-year air pocket.
….So what? If you have the view that the inflation paradigm has changed from deflation to inflation, then is everyone in the wrong assets?
To perform in the next ten years you need to sell what worked (Tech, PE, VC, Growth) and buy what didn’t (International, EM, Commodities, Gold, Value). It makes for a catchy research report, but do you really move a multi-billion portfolio around on a call like this? Do you move away from a strategy that has worked so well for so long? Ooof. That’s tough.
Maybe you reduce all the asset classes that everyone has overweighted and you reinvest where they aint. Add to EM public equities, add to Natural Resources, add to Europe, add to Africa, create a bucket for precious metals and add to that too. And you know what else? You will save a lot on fees paid to Blackstone and KKR. Oh. One other thing. Three years from now, in 2026, set yourself a reminder to create a special fund to buy distressed secondary private equity positions from funds trying to exit.
The good thing is if this switch to international and EM public equities is correct the trade will work for years. It will take the mega funds over allocated to private equity years to get out of their positions and years for the board of directors to think about changing the allocation targets. So after 5 years of EM and International outperforming there will still be another 5 years of outperformance still to go as Yale and Stanford have finally disposed of their money losing fintechs and are ready to buy European banks at 10x earnings (up from 6x today). Effectively, you can front run the endowments for years.
For the last two weeks, I have just been listening to one podcast: Founders by David Senra. Every week David reads a biography of an entrepreneur and shares the key ideas and lessons about entrepreneurship from that founder. So far, he has spent 6 years reading hundreds of biographies and has invested over 10,000 hours in this project.
I have never been a fan of biographies, but David has this ability to bring people to life that is uncanny and addictive. For me it’s been a way to learn both historical context and lessons from the entrepreneurs.
Considering that these are huge books that would take weeks to finish, David has done a great service distilling things down.
He’s published 285 episodes, my favourite six episodes:
#25 Against the Odds: An Autobiography by James Dyson
#54 The Epic Life of Cornelius Vanderbilt
#73 Meet You in Hell: Andrew Carnegie, Henry Clay Frick, and the Bitter Partnership That Changed America
#139 The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
#282 Jeff Bezos Shareholder Letters
Curating further, a couple of lessons I’ve picked up so far:
The one idea that drives you for decades: The core of creating something great is having persistence, stubbornness, courage to keep going. It’s critical to find that idea that will drive you for decades. They were in love with an idea, a vision for what the company was going to do. They could see the final result in their minds and that drove them.
Keep learning: All of the great founders knew their domain better than anyone. The numbers, the people, the processes, the systems. They knew it from the ground up. And they kept learning, looking for improvements, looking for an edge to keep honing their craft, their system, their business. A big part of this was to seek the best in the business. Learn from them, be around them, hire them. The right people make all the difference.
Maniacal Focus: They focused relentlessly on one thing, making their business a success. As you get successful it’s easy to get distracted, but the best stayed focused on their vision over decades.
Be different: Think from 1st principles, don’t keep repeating what others are doing, figure out for yourself the best way to do something. Build new ways of doing things that haven’t been done before. Customers like new solutions and technology too, this will help sales.
Keep costs low and have financial flexibility: Having lower cost structure and financial flexibility helps to survive the business cycle and buy other less prudent investors assets cheaply. Run a tight ship and know your numbers better than others. Avoid ruin.
C. News You Might Have Missed:
1. In the US, more people are now smoking marijuana than cigarettes. Gallup pollsters found that 11% of Americans smoke cigarettes (down from 45% in the 1950s), while 16% smoke marijuana.
2. Turkey is a hotbed of cosmetic surgery, with tourists traveling the world over to get some work done at a slightly cheaper price point. Thanks to the weak lira and the solid medical expertise in the country, business is booming, so much so that Turkish health care companies are hiring polyglot sales reps to offer their services from Asia to the Americas, and it’s working: In 2022, 1 million foreign patients got a hair transplant in Turkey, which is twice the number in 2018 and generated $2 billion in revenue.
3. Europe’s largest deposits of valuable rare earth elements were discovered in Sweden. Rare earths are a group of 17 metals which are vital in many technologies, notably renewables, computing and batteries. The European Union imports 98% of its rare earths from China, and demand is expected to increase 400% by 2030.
4. Gen Z loves outdated tech, they are ditching modern tech for phones and cameras from the early 2000s. Old-school phones and cameras appeal to today’s teens. they can take photos without being on their cell phones. They get space from social media, which 36% of teens say they use too much. Older digital cameras capture less detail and let in less light through their lenses, producing lower-quality photos.
5. The team behind the Formula One documentary series Drive to Survive recently took an up close and personal look at the world of championship tennis. Now comes word that they are doing the same for golf.