314: Value Creation vs Value Extraction, Nvidia, Data Usage, Visa's Founder, Will Thorndike, Ford's Battery Supply, IT Security, YF-23 vs F-22, and Doom

"value extraction doesn't show up in audited financial statements"

A deep interest in a topic makes people work harder than any amount of discipline can.

—Paul Graham

🛀 🤩 📺 It’s interesting how fame works in the balkanized long-tail social media world these days.

Let’s take the US as an example: Back when there were three TV channels, being famous meant that tens of millions of households watched you every week.

Today, there are tons of YouTubers with millions of subs that I’ve never even heard about. There are whole niches that I’ve not heard about, and these can support a whole ecosystem of celebrities with millions of fans each.

How many people are famous in some corner of TikTok yet most people who scroll TikTok have never seen them?

How do you even discover things if the algorithm doesn’t decide to send them your way and you don’t happen to get word-of-mouth recommendations for it? (Well, this newsletter is one such place, but I can only cover so much ground...)

🐢😳 My wife came to me and said "There's a turtle in the pool!"

I pictured a 3-inch pet turtle... It turned out to be this guy:

(In case it's hard to tell from the perspective, he probably weighed 10-15lbs. Did you know turtles can hold their breath underwater for 30-45 minutes?)

💉💪 Back in edition #256, I wrote about my shoulder troubles (adhesive capsulitis).

Things have been improving a bit, especially in the past month. But a year after the problem first started, it wasn’t fully healed yet, which is frustrating.

Yesterday morning, I finally went to the clinic for an arthrographic distension. That’s an injection in the shoulder guided by ultrasound, I think they use lidocaine, cortisone, and saline solution. The goal is to stretch things out and restore flexibility to this membrane that covers the shoulder muscles.

That stuff is magic! 🪄

A minute after getting it I already had more mobility. I’m hoping I can get back to 100% soon — I haven’t done a pull-up in a year. I’ll have to start again from the very bottom of the ladder… 🪜

💚 🥃 I have two requests for you today:

1. If you know people who you think may enjoy this show, please consider giving them a personalized recommendation. Word-of-mouth is the only way that more people come to this steamboat. 🚢

2. If you like an edition, hit that little heart button. It helps send a signal to me of what resonates, and the social proof probably means that newcomers who take a glance are more likely to give it a shot.

Thanks!

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🏦 💰 Liberty Capital 💳 💴

💦🌱 Value Creation vs Value Extraction 🌾✂️👨‍🌾

I like this line by Fred Reichheld:

When profits become purpose, it becomes too easy for large and powerful firms to boost their financial performance by shortchanging customers and employees. 

This is value extraction, not value creation and since value extraction doesn't show up in audited financial statements, this kind of abuse can go undetected for months or even years, at least by the investor community.

Can you think of a handful of examples of each?

Companies that seem to be doing well at first glance, but that are mortgaging their future to have better short-term financial results?

How about a few that are doing financially worse in the short-term than they could otherwise, but are planting a bunch of seeds that will grow into future profitable lines of businesses, products and services that will create value for a long time?

h/t friend-of-the-show WTCM (👋)

Data Usage 📈 💻📱📺 (and I get side-tracked on compression… 🗜)

Cableco Charter mentioned this recently:

Internet customers who do not buy traditional video from us used over 650 gigabytes per month. Nearly 25% of those customers now use a terabyte or more of data per month. And even with the rise of work from home, peak usage patterns still prevail with the vast majority of data usage occurring during the evening hours.

I’d expect that within a few years, the average will be above 1 terabyte/month.

It’s making me think about how far we’ve come — I remember the dial-up days when it would take hours to download a few song MP3s and you may have to let it download overnight to get a 2-minute movie trailer in postage stamp resolution.

Most of that data now is video, and we’re lucky that better compression algorithms are taking some of the load off.

Going from h.264 to HEVC (aka h.265) improved compression by around 50% at comparable quality, which is a big deal. Without it (and similar modern codecs like AV1), making the jump to 4k video would’ve seen data usage explode even more and many people with slower connections couldn’t even stream it.

What’s neat with video codecs is that you’re basically trading CPU cycles for bandwidth, and there’s usually a lot more spare CPU capacity than bandwidth. And once the codecs become standards, they get dedicated encode/decode hardware built into CPUs and now even CPU/energy usage gets minimized. CHTR 0.00%↑

‘Dee Hock, the Father of Fintech’ (Visa Founder) 💳

A couple of editions ago, I wrote about the death of Dee W. Hock (and how much can be accomplished in a lifetime).

A useful reader (sorry, I lost who in my notes…) Fredo (👋) pointed out that friend-of-the-show and supporter (💚 🥃) Marc Rubinstein did a great post about him last year:

• Dee Hock, the Father of Fintech

Here’s a highlight to whet your appetite:

Credit cards were introduced onto the streets of Fresno, California, one mid-September day in 1958. They were the brainchild of Joseph Williams of Bank of America. Although cards were already in circulation, Williams’ cards were novel for bundling pre-approved credit with a payment facility. Many of the original features of Williams’ cards such as the one-month grace period and even the prevailing interest rate of ~18% per year are still in use today. It didn’t end well for Williams – card delinquencies spiralled and he was soon out the bank – but he deserves credit for getting the flywheel started. By inducing enough merchants on the one hand to accept the card and enough consumers on the other to carry it, he laid the groundwork for what would become a multi-billion dollar business.

The man who got the flywheel spinning was Dee Hock. [...]

Hock didn’t especially like credit cards. “I have absolutely no use for credit cards. All I had were destroyed… I’ve not had one since and want none in the future.” But he took the job and ninety days later had rolled out a successful credit card programme for National Bank of Commerce.

Interview: Will Thorndike 🧱

Another good interview by Patrick O’Shaughnessy (☘️):

• Will Thorndike - The Power of Long Holding Periods

They use Transdigm as an example a lot in this, which is fitting considering the interviews with Nick Howley that Will has recently released (and that I linked to in recent editions).

They also mentioned Mark Leonard and Constellation Software, which was on my bingo card as soon as they started talking about decentralized serial acquirers with sticky cashflows and good capital allocation. TDG 0.00%↑

Ford’s battery supply 🛻🔋🔋🔋🔋🔋🪫

[Ford said] it has secured 100% of the battery supplies needed to deliver electric vehicles at a rate of 600,000 per year by the end of 2023 – and that Chinese battery giant Contemporary Amperex Technology [better known as CATL] will help it get to a rate of 2 million EVs per year by 2026, while reducing the costs of some of Ford’s most popular electric models.

The CATL batteries (🇨🇳) will be lithium iron phosphate (LFP), which is lower cost but has a lower energy density than the more common lithium-ion batteries used in most EVs. They also have the benefit of not using any cobalt.

Ford’s current battery suppliers are LG Energy Solution and SK On, both in South Korea. 🇰🇷

Ford will begin offering its Mustang Mach-E with CATL-supplied LFP battery packs next year, and will expand the option to its F-150 Lightning pickup truck in early 2024. (Source)

Tesla has also started using LFP batteries in some of its shorter-range Model 3s and Ys. F 0.00%↑

Nvidia Overview 🕵️‍♂️📊

It’s been a while since I wrote about Nvidia. NVDA 0.00%↑

It’s coming again, but in the meantime, I’ll outsource the task to friend-of-the-show MT Capital:

• Nvidia ($NVDA): The Not So Sleepy Giant

Some highlights from his ‘101 Overview’:

Nvidia’s top-line has grown tremendously over the course of the last few fiscal years. On an annual basis, FY’22 Revenue came in at approximately $27B, representing a 61% YoY increase and 31% CAGR from FY’17.

Enterprise Computing, in my eyes, is a segment that encapsulates Nvidia’s presence within both AI and the “Omniverse”, as well their provision of the hardware (such as GPUs, DPUs (Data Processing Units), etc.) & software that powers these computationally intensive workloads and beyond. Starting off with AI, the developments in this area are arguably some of the most exciting trends in computing underway at the moment, with projections largely aligning with that assertion in terms of magnitude. Fortune Business anticipates that the market value of Global AI will reach approximately $270B by 2027 and PwC Global estimates that the total contribution of AI to the global economy will be approximately $16T by 2030.

In 2021 as an example, Total Gaming Expenditures on both console and PC, as estimated by a newzoo report, totalled approximately $85B, with DFC Intelligence estimating that video game hardware purchases, including graphics cards, gaming keyboards etc. were approximately $82B. Although these numbers are most definitely tainted from the lingering effects of pandemic-induced tailwinds, phenomena that may have lead to the most ideal circumstances for the gaming industry in its entire history, I think we can conclude with reasonable soundness that the space is large.

🏴‍☠️ How important is IT security? Crypto edition

The Nomad token bridge appears to have experienced a security exploit that has allowed hackers to systematically drain a significant portion of the bridge’s funds over a long series of transactions.

Nearly the entire $190.7 million in crypto has been removed from the bridge, with only $651.54 left remaining in the wallet (Source)

The bad news is they took $190 million.

The good news is they left $651.54 😬

Black-hat hackers are like water that flows downhill through the path of least resistance. Right now, that’s a lot of crypto projects will millions in assets that can be made pretty untraceable, and shoddy security.

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🧪🔬 Liberty Labs 🧬 🔭

‘The Only Plane That Could Beat The F-22 Raptor’

While I’m on the fighter jet rabbit hole (triggered by Top Gun — my review here), here’s a very cool overview of the Northrop-designed plane that competed with what ended up being the F-22 Raptor.

Some very cool design and tech innovations, and likely the only aircraft that could compete — and possibly beat — the F-22.

🇩🇪 Germany still dithering on its nuclear power plants ☢️

German chancellor Olaf Scholz said it might “make sense” to extend the life of Germany’s last nuclear power plants, as reduced gas flows from Russia raise the prospect of a winter energy crunch in Europe’s largest economy.

He said the three plants due to close at the end of this year only accounted for a “small proportion” of Germany’s total electricity capacity. “But still it might make sense” to let them run for longer, he added.

What he doesn’t mention is that they had 12 plants accounting for over 25% of Germany’s electricity, producing the majority of their clean and reliable baseload power at very high capacity factors (the Germans have been very good at operating nuclear power plants, better than the French, from what I hear — but what does it matter if they shut them down?).

In the meantime, Germany is burning a lot more coal and gas and is leaving it up to Lady Luck for next winter (is it going to be particularly cold? Cloudy? Windless? What will Putin do? ¯\_(ツ)_/¯)…

☀️ 🌻 Solar Power in the U.S. (in 2021) 🇺🇸

Via Chartr

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🎨 🎭 Liberty Studio 👩‍🎨 🎥

Watch me play Doom 🎞

🚨 Be warned: Doom is a very violent game, there’s lots of blood & gore. It’s kind of cartoony (it’s based on a game from 1993 after all), but still very violent.🚨

I’m sure many of you — if not most — have been wondering about the important question: How good is Liberty at Doom (the 1993 game, which has been getting new maps, mods, and updates by the open source community for 25+ years)?

Well, now you don’t have to wonder!

I recently wrote about the idea of “pointless goals”. I decided to set myself the goal of learning how to record videos with OBS, and what better way than to upload some of my casual Doom gameplay to Youtube?

It’s been fun so far and I’ve already uploaded a bunch of vids.

Note that I don’t play the old-school-vanilla version. I prefer to use a mod that makes monsters *way more fierce* and weapons somewhat more realistic (I link the maps and mods I use in the Youtube descriptions).

The video above is one of the most intense single-player games I’ve ever played — the ‘Overkill’ version of this map is just insane!

Here’s the Doom playlist on my Youtube channel if you want to follow along.

I’ll keep uploading more over time, feel free to subscribe if you enjoy nostalgia-gaming — but make sure to watch in the highest resolution on Youtube, or things will be fuzzy.