306: Nick Howley on Transdigm's History, Youtube Inner Workings, Netflix + Microsoft, Great Resignation/ Remorse, China's Lithium Dominance, and Fentanyl
"Doesn’t he look like the cat that ate the canary?"
More effort is wasted doing things that don’t matter than is wasted doing things inefficiently.
Elimination is the highest form of optimization.
🔧👨🏻🔧🧰👷♂️🪚 Follow-up to the intro of edition #302 where I wrote about the satisfaction that comes from building and fixing concrete things vs being a “symbol manipulator”:
A reader and supporter (💚 🥃) who prefers to stay anonymous emailed me this:
Your thoughts on repair really hit my emotional zeitgeist!
I’m very fortunate to be in a role that most days I enjoy a lot (doing investment research)… but after close to two decades of doing it, I have to say I do have a strange sense of envy of those who actually build something.
I was walking past a construction site the other day looking at the laborers working on all different pieces, and thought – wow – 50 years later, the guy who laid those bricks can walk by and say – that was me. And 100 years later that building is likely still standing and his kids or grandkids or someone else can walk by and say the same thing.
And that made me feel quite unimportant and made me pause and question things. Because I don’t think anyone is going to be opening up an old investment memo of mine from even 10 years ago or an excel model! There is something different about doing something outside of 0s and 1s…
I realized something was missing in my life if I was only putting numbers in excel, talking to people on the phone, and writing investment memos. And so I’ve started to cook again – only 1-2 times a week – but it gives me great satisfaction (even if the end product is only ok!).
Cooking is a great example, very satisfying too if you do it with the right mindset (ie. not just a chore you want to rush through as fast as possible without carrying too much about improving your skills or the end result).
It’s a good example of creating something tangible, even if it’s ephemeral.
I think that’s one thing I like about this newsletter vs just writing personal notes that nobody else will ever see.
It feels a bit more real, out in the world.
There’s a chance my kids could listen to some podcast I did in 20 years to have a kind of time capsule, or there’s a chance I can have a conversation with someone about something I wrote, and that feels more tangible.
I guess I used building and repairing as examples, but they’re just subsets of the whole “creation” thing more broadly: whether you’re painting or whittling wood or gardening or cooking or building a nice garden shed, it’s a similar impulse 🤔
🤖 🤖 Follow-up to the paradox of automation from edition #304, reader U.J. had a great old-school reference to an Isaac Asimov short called The Feeling of Power from 1958 (I haven’t read that one, but the Wikipedia plot summary was vivid enough):
In the distant future, humans live in a computer-aided society and have forgotten the fundamentals of mathematics, including even the rudimentary skill of counting.
The Terrestrial Federation is at war with Deneb, and the war is conducted by long-range weapons controlled by computers which are expensive and hard to replace. Myron Aub, a low grade Technician, discovers how to reverse-engineer the principles of pencil-and-paper arithmetic by studying the workings of ancient computers which were programmed by human beings, before bootstrapping became the norm—a development which is later dubbed "Graphitics".
The discovery is demonstrated to senior programmer Shuman, who realizes the value of it. But it is appropriated by the military establishment, who use it to re-invent their understanding of mathematics. They also plan to replace their computer-operated ships with lower cost, more expendable (in their opinion) crewed ships and manned missiles, to continue the war.
Aub is so upset by the appropriation of his discovery for military purposes that he commits suicide, aiming a protein depolarizer at his head and dropping instantly and painlessly dead. As Aub's funeral proceeds, his supervisor realizes that even with Aub dead, the advancement of Graphitics is unstoppable. He executes simple multiplications in his mind without help from any machine, which gives him a great feeling of power.
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Oops. "Millions of Americans Regret Quitting in the Great Resignation" 😬
Great Resignation leads to Great Remorse:
About 20 million Americans quit their jobs in the first five months of this year, in what’s come to be known as the Great Resignation. Many now regret the decision, according to a new survey.
More than one-quarter of those who left work are reconsidering whether they made the right move [...]
Some also found that they missed colleagues. “Social connection is often an underrated one,” says Kevin Harrington, Joblist’s CEO. “Many people spend as much time at work as they do with family and friends. For those who build strong personal relationships with colleagues, it can make a huge impact on how they view their job and how likely they are to stay in it.”
🛩 Interview: Nick Howley, telling Transdigm’s history 🛫
Doesn’t he look like the cat that ate the canary? 🐤🐈
I suppose he has reason to be pleased, considering his track-record! TDG 0.00%↑
It’s a great podcast.
He shares his story from the very beginning, buying 4 aerospace businesses (that he was managing and had been tasked to sell to others!) through the multiple private equity ownership rounds and life as a public company.
I love how clear his thinking is on what matters to create value.
If you follow the link above, along with the audio you can also see a bunch of “resources” that include things like the 1993 Private Placement Memorandum and various investment memos and presentations from over the years. There’s even one that draws parallels between TDG and Constellation.
I’m looking forward to future episodes, and while I know there’s basically zero chance of that happening, it’s making me wish that Mark Leonard (or maybe Mark Miller or Bernie Anzarouth) would do the same and tell CSI’s story from the very early days.
Heico would be another good one 🤔
🔋🔋🔋🔋 🇨🇳 China’s lithium dominance🔋🔋🔋🔋
When it comes to processing lithium, China is in a league of its own. The superpower gobbled up about 40 percent of the […] raw lithium mined globally in 2021. Hundreds of so-called gigafactories across the country are churning out millions of EV batteries for both the domestic market and foreign carmakers like BMW, Volkswagen, and Tesla.
China’s share of the market for lithium-ion batteries could be as high as 80 percent, according to estimates from BloombergNEF.
Six of the 10 biggest EV battery producers are based in China—one of them, CATL, makes three out of every ten EV batteries globally.
That dominance extends through the supply chain. Chinese companies have signed preferential deals with lithium-rich nations and benefited from huge government investment in the complex steps between mining and manufacturing.
Some steps are being taken, but if the global supply chain is to be diversified out of China, there are no easy shortcuts; mines, refineries, and manufacturing plants will need to be built. And we can’t get stuck in 10-15 years of regulatory reviews for each one…
It’s not so much that lithium is rare — it isn’t.
But you still need to get it from ‘ore in the ground’ to ‘useable batteries’. Heavy lifting for the light element…
In March, US president Joe Biden announced plans to use the Defense Production Act to fund domestic mining of lithium and other critical battery materials under the auspices of national security. Across the Atlantic, the European Union is advancing legislation to try and create a green battery supply chain within Europe, with a focus on recycling lithium.
The refining side seems particularly challenging:
But there’s an important piece missing between mine and manufacturing. Turning lithium ore into the purer lithium carbonate or lithium hydroxide needed for batteries is an expensive and complex operation. It takes years to get a lithium processing plant or gigafactory off the ground, and it could take decades and an estimated $175 billion for the US to catch up to China. China controls at least two-thirds of the world’s lithium processing capacity, and it’s this more than anything that could give it a stranglehold on the battery market for years to come.
The best time to start on this was 20 years ago. The next best time is now.
📺 ⚙️⛓ Inner workings of the Youtube economy (and TikTok, Twitch, Instagram, etc)
It’s interesting to think that creators make most of their income from in-video advertisements that they themselves negotiate outside of the Youtube ecosystem (unlike the programmatic ads inserted by the platform). GOOG 0.00%↑
That’s a lot of value that Google/Youtube isn’t touching directly 🤔
👰🏻♀️💍🤵🏼♂️Netflix picks Microsoft to be “Exclusive” ad partner 📺
Speaking of streaming video, Netflix NFLX 0.00%↑ has picked Microsoft MSFT 0.00%↑ as partner for its upcoming ad-supported tier. There’s little detail yet, but the most important aspect seems to be the exclusivity:
At launch, consumers will have more options to access Netflix’s award-winning content. Marketers looking to Microsoft for their advertising needs will have access to the Netflix audience and premium connected TV inventory. All ads served on Netflix will be exclusively available through the Microsoft platform. Today’s announcement also endorses Microsoft’s approach to privacy, which is built on protecting customers’ information.
It makes sense:
A person familiar with Microsoft’s weeks-long pitch to Netflix said the tech company stressed one word: agnostic. Microsoft emphasized that it won’t compete in streaming with Netflix, the person said. Comcast’s NBCUniversal operates the Peacock streaming service while Google owns YouTube.
This is the Xandr business they bought from AT&T in 2021.
Deaths from Drug Overdoses in the US, Tragic Chart Edition
To comprehend the scale of the fentanyl epidemic consider that in 2020 there were 25k homicides in the US but 92k overdose deaths. The doubling since 2014 is due almost entirely to fentanyl. The absolute harm + rate of change make it arguably society's most intractable problem.
Strangely, this isn’t getting attention commensurate to the scale of the crisis. It doesn’t even feel close to the mass-hysteria about the “crack epidemic” a few decades ago.
🧪🔬 Liberty Labs 🧬 🔭
Can you overdose from skin contact with Fentanyl? 🤔
Speaking of drug overdoses (not a sentence I like writing)…
Maybe like me, you had heard stories about police officers overdosing from just accidentally touching white powder…
I vaguely thought it could be possible — stranger things have happened — but had never really given it much thought. It’s impossible to fact-check everything you hear; some things are bound to slip through and embed in your mind…
Back to the video: Naloxone — which can very effectively prevent opioid overdoses — is prescription-only and hard-to-get? What’s the logic of that?
More here on the toxicology of fentanyl and skin contact (a toxicologist turned his own accidental exposure into an experiment).
🇯🇵 ‘Japan Wants Up to Nine Nuclear Reactors Online This Winter’
That’s how you deal rationally with an energy crisis! (well, after creating the problem by being irrational in the past, but better late than never)
Japanese Prime Minister Fumio Kishida said he asked for as many as nine nuclear reactors to be online this winter to help with an expected power crunch. [...]
Japan is struggling with tight electricity supplies due to extreme weather, the retirement of older power plants, and delays to restarting nuclear reactors that were shut following the Fukushima nuclear disaster in 2011. It is also cutting its use of energy sources from Russia following its invasion of Ukraine. [...]
Ten of Japan’s 33 operable nuclear reactors had been restarted under post-Fukushima safety rules, though some are offline for maintenance. A further seven units have been cleared by the nation’s nuclear regulator to resume operations but haven’t yet restarted
What’s the path to get to 33?
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Perception 👀 🧠
"Mario games teach us that even if something is essentially the same, psychologically it can be completely different. This example is very easy to understand."