Discover more from Liberty’s Highlights
216: Myth of the Average Investor, Henry Singleton and Long-Term Plans, Disney vs TSMC, Koyfin, Tesla FSD on Deadliest Road, and Log4J's Cyber Pandemic
"I like to steer the boat each day"
The curiosity we feel when we see something that is surprising or puzzling or ambiguous, that doesn’t agree exactly with our previous knowledge or presumed knowledge, is not the same as the curiosity we feel as the love of knowledge — what drives research in science, for example.
The first one is associated with a state of mind that is aversive. It’s an unpleasant feeling, which we try to get rid of.
—Mario Livio via
(“What is it about children that makes them ask so many curious and thoughtful questions that adults can’t answer, or never even think to ask?”)
🌲🌲🚶🏻♂️🌲🌲🐿🌲🌲 I hadn’t taken a walk in the woods alone in a few weeks. I had been with my family and some friends, but not *alone*, and that makes a difference.
I think my brain really needed it.
The fresh air & the exercise, sure, but also the brain massage (💆🏻 🧠) that nature always provides if you spend long enough bathing in it by yourself.
🌡 🥵 🥶 I’ve written a few times about the concept of really *knowing* something, *understanding* it and how it works, vs knowing the “answer”, a series of words that could be considered “the teacher’s password” (ie. in a school test, you’d get a passing grade for writing that down, but it doesn’t mean you actually understand the thing and could explain it to a 5yo).
An example of this: I don’t really know how our bodies maintain their core temperature of 37c/98f.
I know the superficial answer to this question, but I don’t know the actual configuration of atoms inside our bodies that act as temperature sensors triggering mechanisms to raise or lower temp when too cold or hot.
I know that homeostatic systems usually have a bunch of negative and positive feedback loops converging towards the desired equilibrium, but that’s abstract.
What are the *physical structures* that do this?
I had to look it up. Maybe you’re now curious too after this prologue about it:
Our internal body temperature is regulated by a part of our brain called the hypothalamus. The hypothalamus checks our current temperature and compares it with the normal temperature of about 37°C. If our temperature is too low, the hypothalamus makes sure that the body generates and maintains heat. If, on the other hand, our current body temperature is too high, heat is given off or sweat is produced to cool the skin.
I first found this, which told me where to look, but no real answer yet. How does the hypothalamus “know” what’s the temperature of our body?
The primary input into thermoregulatory system comes from sensory neurons that measure the temperature of the body. Most of these sensory neurons have cell bodies located in peripheral ganglia and axons that extend out to measure the temperature of key thermoregulatory tissues (e.g. the skin, spinal cord, and abdominal viscera; discussed below). A separate set of sensory neurons are located within the brain itself and measure the temperature of the hypothalamus. [...]
Peripheral temperature sensing is mediated primarily by two classes of sensory neurons that are activated by innocuous warmth (~34-42°C) or cold (~14-30°C).
These neurons have cell bodies located in trigeminal ganglion (for innervation of the head and face) and dorsal root ganglia (DRG; for innervation of the rest of the body). They are pseudounipolar, meaning that their axons split into two branches, one of which innervates the skin or viscera and the other projects to the dorsal horn of the spinal cord or to the spinal trigeminal nucleus in the brainstem
That only makes me wonder how these cells can sense temperature — what kind of thermometer has nature evolved? Does it work the same for all species, or have many variations co-evolved? — but that’s probably deeper down that rabbit hole than I need to go right now, if I don’t want to lose all of you…
💚 🥃 If you learned something and/or are entertained by this steamboat 🚢 please don’t forget to tip your waiter — everybody has to to put food on the table for their family, even me 👨👩👦👦. Thank you!
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Investing & Business
The myth of the "average" investor
Good reminder by friend-of-the-show and supporter MBI (💎 🐕) about how you should look under the hood of averages (remember drowning in that river that is just 4-feet deep on average?):
One of the common misperceptions I think is many believe they just need to be better than the "average" investor to beat the market in the long-term. The reality is very, very different.
Let me explain.
Imagine 10 people started actively managing their money today. They all have $100. They invest for 30 years and they all generate different return over that period. Three got completely wiped out. Five people generated between 1% and 5% CAGR.
Of the initial 10 people, you have 8 of them who have generated anemic returns over 30-yr period. If you make better than 5%, you will be among the top 20 percentile. You can also *feel* much better than the average investor.
Wait a minute. We have still two people left. It turns out one of them is reincarnation of Warren Buffett. That person makes an eye-popping 25% CAGR. What about the one other person? He/she makes a respectable 12% CAGR over the same period.
The initial pool of capital of $1K for these 10 people would be 85x over 30-yr period, implying 16% CAGR. Alas, only one person would beat the market in this scenario. Here's what it looks like.
Investor "A" made >2x higher CAGR over 30-yr than 80% investors in this hypothetical market, yet underperform the "index" by ~400 bps.
So if you are actively managing your money, your competition isn't the "average" investor. It's typically the best of the best.
🗺 🧭 Long-Term Plans vs Projects, Henry Singleton Edition
I like to have projects, not big masterplans.
If you internalize that the future *really* is unpredictable, it makes long-term planning difficult (at least with the definition of “planning” that I’m using here — let’s not get into semantics).
I’m often reminded of an old interview with Henry Singleton where the journalist was looking at all the seemingly unrelated things inside of Teledyne, and asking Singleton what his strategy was, was there a masterplan behind all this? or something of the sort.
My only plan is to keep coming to work every day. I like to steer the boat each day rather than plan ahead way into the future. I know a lot of people have very strong and definite plans that they’ve worked out on all kinds of things, but we’re subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible.
The long-term should still be guided by values, principles, a north star (or maybe a constellation of stars..?)…
But I don’t think it’s ideal to have very specific long-term plans, at least when it comes to things that are largely outside your control (ie. you can plan to go study medicine and become a M.D. — but even with such a plan, it’s good to stay open to opportunities, changes in yourself and the world, etc).
If you’re too rigid, you’re sure to miss some of your best opportunities, and many of these may not come twice…
💰 Investing Big Bucks: Disney vs TSMC 💰
In 2022, Disney plans to spend ~as much on content development as TSMC will on capex ($33B vs $32B). Both numbers are larger than every oil major’s planned capex
(I recognize these numbers are not at all directly comparable, do not @ me about that)
Also, Samsung Semi!
Leading-Edge Semiconductor Fabs, the New Nuclear Weapons? 💣
Interesting analogy by supporter Ben Thompson (💚 🥃 🎩):
Leaving aside the fact that Murray’s suggestion that China might just waltz into Taiwan and seize the fabs isn’t realistic (the truth is that fabs are tremendously fragile and would never survive a war), and that Gelsinger’s reference to Taiwan’s airspace is incorrect, a world where the U.S. owned the entire chip supply chain, and presumably a whole bunch of other supply chains as well, would in many respects be less stable than the current situation, precisely because both the U.S. and China would have much less to lose. Globalization generally, and chips specifically, are a sort of weapon of mutually assured economic destruction; like nuclear weapons, that may seem terrifying in isolation, but more comforting than you might expect when considered systematically.
This makes a lot of sense, though unlike nuclear weapons which are primarily offensive, fabs are primarily defensive, which leads to a different M.A.D. equilibrium…
Still very interesting to think about (dare I say, it’s now time for some game theory..?) 🤔
Interview: Rob Koyfman, co-founder Koyfin.com
As mentioned before, it’s always an extra nice feeling when two friends-of-the-show are having a conversation, and thanks to the magic of a bunch of 1s and 0s turning into audio waves, I can listen-in:
It brought some ☀️ to my day when Rob gave me a hat tip.
I’m just happy to be able to help a little with this cool thing they’re building (disclosure: I did a private investment in Koyfin, but only after using the product daily for years and getting to know the team. I’m not saying nice things because I invested, I invested because I was thinking nice things, so I’m just putting my money where my mouth is).
Rob mentioned that Koyfin doesn’t usually discount, but they offer a 20% off discount to listeners of the Business Brew. You can find the discount link in the show-notes of the podcast (link above).
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Science & Technology
Trying Tesla’s “Full Self-Driving Beta” on the “Deadliest Road in America” ⚠️ 🚗 🚧
Tiny annoying gas-powered devices to go electric in California
The California Air Resources Board approved a measure that will require most newly manufactured small off-road engines (SORE) such as those found in leaf blowers, lawn mowers and other equipment be zero emission starting in 2024. [...]
Despite their small size, these engines are highly polluting. The volume of smog-forming emissions from this type of equipment has surpassed emissions from light-duty passenger cars and is projected to be nearly twice those of passenger cars by 2031. Today, a commercial operator using one backpack leaf blower for one hour generates the same smog-forming emissions as a car driving 1100 miles. (Source)
People don’t realize how dirty these things are when it comes to smog-forming emissions… Don’t let the small size fool you.
And oh-so-much-quieter… 🙉
Hopefully other jurisdictions follow suit quickly.
I’m fine with exceptions for situations where nothing else than gas motors can do the job, but the vast majority of these in urban environments could easily be replaced by less noisy, less polluting versions and everybody’s quality of life would be increased.
While on the topic of air quality, more frequent inspection of heavy-duty diesel vehicles also makes a lot of sense, since inspecting a relatively small number of vehicles could yield a huge gain:
The California Air Resources Board approved a smog-check regulation for medium- and heavy-duty trucks and buses. While these heavy-duty vehicles with a gross vehicle weight rating (GVWR) greater than 14,000 pounds comprise only 3% of all vehicles on California roads, they are responsible for more than 50% of nitrogen oxides and fine particle diesel pollution from all mobile sources in the state.
Log4J Vulnerability: A cyber-pandemic
Diving into the numbers behind the attack, gathered and analyzed by Check Point Research, we see a pandemic-like spread since the outbreak on Friday, by the beginning of the week, on Monday.
Early reports on December 10th showed merely thousands of attack attempts, rising to over 40,000 during Saturday, December 11th. Twenty-four hours after the initial outbreak our sensors recorded almost 200,000 attempts of attack across the globe, leveraging this vulnerability. As of the time these lines are written, 72 hours post initial outbreak, the number hit over 800,000 attacks.
It is clearly one of the most serious vulnerabilities on the internet in recent years, and the potential for damage is incalculable. [...]
We have so far seen an attempted exploit on almost 44% of corporate networks globally (Source)
Omicron Update 💉🦠
I don’t necessarily want to take a ton of space in every issue to track this, but I think it’s worthwhile to share some of the interesting stuff I find:
Omicron is getting more defined (Eric Topol, Dec 13)
P.S. Get your 3rd dose, if it’s available where you are. And take vitamin D supplements (in gelcaps, not dry tablets, with a meal).
The Arts & History
‘Deadwood Series-Premiere Recap: A Hell of a Place to Make Your Fortune’
Welcome to 12 Days of Deadwood, in which Matt Zoller Seitz, author of the upcoming A Lie Agreed Upon: The Deadwood Chronicles, revisits the first season of the landmark HBO drama one episode at a time
h/t Kevin Holloway (🤠)