23: Berkshire Invests in Snowflake, My Thoughts on TIKR, Uber Deep Dive, Whisky Nest Egg, and Chess Boxing

"calling each other on the phone, like animals..."

Sep 09, 2020

Compassion flows from what you do right now -- future intentions don’t count.
-Le Ly Hayslip (I highly recommend her memoirs, ‘When Heaven and Earth Changed Places: A Vietnamese Woman's Journey from War to Peace’)

Any time I read a book published pre-Internet, pre-PC, about complex endeavours (scientific, technological, business...), I can’t help but wonder how they did it all on paper, with the information stuck in file cabinets somewhere, calling each other on the phone, like animals...

And I think this applies to both the “complex endeavor” itself, whether the Apollo Project, the Manhattan Project, or building skyscrapers, nuclear reactors, complex industrial supply chains or whatever… and about writing the books about it (doing all the research and writing on paper, without the Internet).

❤️In the “good news” department: Congrats to my friend David Kim (Scuttleblurb) and his partner for the two new family members!

Investing & Business

❄️ Berkshire and Salesforce Invest in Snowflake

I have to admit, I didn’t expect to see Berkshire in a Snowflake filing. But before we get a million “Buffett bought…” headlines, let me preemptively say that it’s highly likely to be Todd or Ted*:

The 6,250,000 shares of Class A common stock we are selling in the concurrent private placements to Salesforce Ventures LLC and Berkshire Hathaway Inc. , assuming an initial public offering price of $80.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the 4,042,043 shares of Class A common stock one of our stockholders is selling to Berkshire Hathaway Inc. in a secondary transaction will be subject to market standoff agreements with us for a period of up to 365 days after the date of this prospectus as well as b e ing subject to lock-up agreements with the underwriters described above. (Source)

The IPO is being priced at $75-85/share. Here’s LFG Capital’s math on what the post-IPO enterprise value would be (based on a Canalyst model).

*Well, that was my first thought anyway. But someone very smart about these things pointed out that it’s very possible for Buffett to have been part of the deal himself (maybe the secondary transaction?), even if he wasn’t the one who came up with the idea. Some Berkshire units (including possibly GEICO) are probably Snowflake customers and could provide a lot of first-hand info about it, kind of like how Buffett got to understand Google AdSense (he discussed it a little while ago).

TIKR Financial Data & News

I’ve been playing a bit with a new financial platform called TIKR (you can signup from this link or the link I post at the bottom of this section) in the past few days. It’s too early for me to have a solid opinion, and it’s still a young site that is likely to keep changing and evolving rapidly as it is developed.

But so far, I’m very intrigued by what is there. They’ve made significantly different design decisions than some of my other favorite sites like Koyfin, Atom Finance and Unhedged, and it’s great to see dynamism in the space. Maybe Google Finance had to die for this Cambrian explosion to happen…

Here are some details that I like (I’ve also sent them some feedback about things I thought could be improved, but I’ll keep that private):

(btw, I’m being told that the site will have real-time stock data after the beta phase)

If you look at the yellow highlights, I like how you can pick a time period that doesn’t fall neatly in the usual “1y/3y/5y/10y” pretty easily using the slider at the bottom, and I like how they put absolute returns and CAGR returns info near the top. This was a recommendation that I made to RocketFinancial a few years ago, and I also like their implementation (if you go here and hover your mouse over the chart, you’ll see the return and CAGR up to that point).

Another one:

I like how they maintain the slider metaphor for timeframe in the Financials page, and I like that they provide a page with pre-calculated ratios that is fairly exhaustive. Very useful when you want to get an idea of what is going on under the hood at a glance before digging deeper. They do a similar thing with valuation multiples on various metrics, which is nice.

They also have a ‘dark mode’, which is another must-have these days. If the goal is for your users to spend all day in your software, think of their poor retinas!

I also thought this one was clever:

For those who want to put into practice the theory that you should do all your research and valuation work before you look at the stock price — much better to do if the stock price isn’t plastered all over. Not something that many will have the discipline to use, but I like the thinking behind giving the option.

And I also really like that they provide transcripts. This should become table-stakes for financial info sites. In fact, I’ve long said that I think the SEC should mandate all public companies to provide high quality transcripts on their investor relations pages. If the idea is for all investors to have access to these calls, it makes not sense to only provide audio or bad transcripts to million of retail investors and have good quality transcripts be available quickly to those who pay (or mostly get their employers to pay for them). Whatever it costs to get transcripts won’t be material to any company that already has the expenses to be public, but it’d be a big help to millions of investors out there. End of rant.

If you want to try TIKR out, you can follow this link to get an invite to sign up.

‘A toothpaste factory had a problem’

This is certainly apocryphal, but I love it nonetheless:

A toothpaste factory had a problem: Due to the way the production line was set up, sometimes empty boxes were shipped without the tube inside. People with experience in designing production lines will tell you how difficult it is to have everything happen with timings so precise that every single unit coming off of it is perfect 100% of the time. Small variations in the environment (which cannot be controlled in a cost-effective fashion) mean quality assurance checks must be smartly distributed across the production line so that customers all the way down to the supermarket won’t get frustrated and purchase another product instead.
Understanding how important that was, the CEO of the toothpaste factory gathered the top people in the company together. Since their own engineering department was already stretched too thin, they decided to hire an external engineering company to solve their empty boxes problem.
The project followed the usual process: budget and project sponsor allocated, RFP (request for proposal), third-parties selected, and six months (and $8 million) later a fantastic solution was delivered — on time, on budget, high quality and everyone in the project had a great time. The problem was solved by using high-tech precision scales that would sound a bell and flash lights whenever a toothpaste box would weigh less than it should. The line would stop, and someone had to walk over and yank the defective box off the line, then press another button to re-start the line.
A short time later, the CEO decided to have a look at the ROI (return on investment) of the project: amazing results! No empty boxes ever shipped out of the factory after the scales were put in place. There were very few customer complaints, and they were gaining market share. “That was some money well spent!” he said, before looking closely at the other statistics in the report.
The number of defects picked up by the scales was 0 after three weeks of production use. How could that be? It should have been picking up at least a dozen a day, so maybe there was something wrong with the report. He filed a bug against it, and after some investigation, the engineers indicated the statistics were indeed correct. The scales were NOT picking up any defects, because all boxes that got to that point in the conveyor belt were good.
Perplexed, the CEO traveled down to the factory and walked up to the part of the line where the precision scales were installed. A few feet before the scale, a $20 desk fan was blowing any empty boxes off the belt and into a bin. Puzzled, the CEO turned to one of the workers who stated, “Oh, that…One of the guys put it there ’cause he was tired of walking over every time the bell rang!”

While the story itself may not be literally true, there’s still undeniably some truth to the idea. You just know that this kind of stuff is going on, maybe not often to this caricatural level, but we’ve probably all heard about or seen pretty bad situations where common sense and frugality are replaced by wasteful Rube Goldberg processes and technologies.

Source.

Amazon Trying to Woo SMBs

Perhaps trying to regain some of the PR initiative from Shopify (“arming the rebels”):

Amazon is on track to spend $18 billion in 2020 to help independent businesses reach more customers and grow sales, including investments in logistics, tools, services, programs, and people. In the next twelve months, we will provide more than 500,000 U.S. SMBs currently selling through Amazon with guidance, education, and support, and we plan to onboard an additional 100,000 U.S. businesses as new sellers in our store. In 2020, we have already released more than 135 tools and services to help sellers manage their Amazon businesses. [...]
In the 12 months ending on May 31, 2020 American SMB sellers each had an average of over $160,000 in sales, up from approximately $100,000 a year earlier, and the number of U.S. SMB sellers that surpassed $1 million in sales grew by more than 20%. SMBs selling on the Amazon.com U.S. store support an estimated 1.1 million jobs in 2020, up from 830,000 in 2019. (Source)

Speaking of Amazon, Ben Evans has a new post about disaggregating the various businesses of Amazon. The last section about the size and profitability of Amazon’s ad business is particularly interesting.

Uber Deep Dive by ‘Mostly Borrowed Ideas’

There is hardly any doubt that Uber has created enormous consumer surplus over the last decade. Given I just recently bought my first car, I have used Uber’s services hundreds of times in recent years. I am, generally speaking, a satisfied customer and true to Peter Lynch philosophy, I wanted to dig deep to see whether I like the stock too.

Read the rest here. You can follow @borrowed_ideas on Twitter.

Whisky Nest Egg

Here’s a wholesome one (unless you are a teetotaler):

Matthew Robson, from Taunton, was born in 1992 and over the course of his life his father Pete has spent about £5,000 on 28 bottles of Macallan single malt.

Every year his father bought him a 18-year-old Macallan. The first one cost £21.

"Each year I received it as a birthday present," Matthew said. "I thought it was quite a quirky little present as I was slightly too young to start drinking.
"But I was under strict instructions, never, never to open them and I tried my hardest and succeeded and they're all intact." [...]
Since then, experts say Macallan has become collectable and Matthew is hoping to sell his collection for £40,000 and use the money for a house deposit. (Source)

An 8-bagger over 28 years isn’t bad. It’s better if you consider that the money wasn’t all spent on day 1 but was split over the years, so the IRR is pretty good (I’m too lazy to look up the price of Macallan 18 ever year in the UK to figure it out… Gotta pick your battles and this one isn’t worth the effort).

Trivia: If you’re an american and the spelling “whisky” seems wrong to you, it’s because in Ireland they generally spell it “whiskey” and the U.S. has followed suit, while Scotland and places like Canada, India and Japan are spelling it without the “e”.

Nintendo Switch Keeps Going Strong, 4k Coming?

For a console that came out in 2017 and that is facing new competition from the PS5 and Xbox Series X, the Nintendo Switch is showing impressive longevity:

Nintendo Co. has asked its assembly partners to increase production of its Switch gaming console again, raising its goal to as much as 30 million units for this fiscal year [...]
The Japanese games maker has been struggling to keep up with Switch demand for most of this year, boosted by the runaway success of Animal Crossing: New Horizons and the coronavirus pandemic lifting gaming demand. [...]
Several outside game developers, speaking anonymously as the issue is private, said that Nintendo has asked them to make their games 4K-ready, suggesting a resolution upgrade is on its way. (Source)

“Jesse Livermore” Drops a New Magnus Opus

I haven’t had time to read it all yet, but having read most of what he’s written in the past and knowing how smart “Jesse” is, I think it’s worth linking blind:

Upside-Down Markets: Profits, Inflation and Equity Valuation in Fiscal Policy Regimes

An upside-down market is a market in which good news functions as bad news and bad news functions as good news. The force that turns markets upside-down is policy. News, good or bad, triggers a countervailing policy response with effects that outweigh the original implications of the news itself.

Science & Technology

SpaceX Starship Raptor Engine (Human for Scale)

The first Raptor Vacuum engine (RVac) for Starship has shipped from SpaceX’s rocket factory in Hawthorne, California to our development facility in McGregor, Texas (Source)

Each Starship will have 28 of these engines. They’re powered by cryogenic liquid methane and liquid oxygen (LOX) and have “more than two times the thrust of the Merlin 1D engine that powers the current Falcon 9.” (2,200 kN or 500,000 lbf each)

Hawthorne Effect

The validity of the original Hawthorne Effect study is controversial (like many social science studies that fail replication), but it’s still a good pump primer for critical thought and for considering second-order effects.

The original research involved workers who made electrical relays at the Hawthorne Works, a Western Electric plant in Cicero, Illinois. Between 1924 and 1927 the famous lighting study was conducted. [...]
The Hawthorne Works had commissioned a study to determine if its workers would become more productive in higher or lower levels of light. The workers' productivity seemed to improve when changes were made, and slumped when the study ended. [...]
Workers experienced a series of lighting changes in which productivity was said to increase with almost any change in the lighting. This turned out not to be true.
Later interpretations such as Landsberger's suggested that the novelty of being research subjects and the increased attention from such could lead to temporary increases in workers' productivity.

There’s little doubt that the very act of observing someone, and them knowing that they are observed, has an effect. It’s the classic “having the boss over your shoulder all day long”…

Keeping Things in Perspective

Source.

The Arts

Chess Boxing 🥊 ♟

Ok, just the concept tickles me enough to warrant inclusion here. I’ve actually never seen chess boxing in action, but I don’t need to.

The basic idea in Chessboxing is to combine the number one thinking sport with the number one fighting sport into a hybrid that demands the most of its competitors - both mentally and physically [...]
Chessboxing was invented by French comic book artist Enki Bilal and adapted by Dutch performance artist Iepe Rubingh as an art performance [...]
A chessboxing fight consists of 11 rounds, 6 rounds of chess and 5 rounds of boxing, and a victory in either chess or boxing wins and ends the entire contest. Chess and boxing rounds alternate, and a full-distance contest begins and ends with a round of chess. Each round lasts three minutes, regardless of whether it involves chess or boxing.

Via Tiffany Arment at Top Four podcast.