508: Anxious Investors, Microsoft Security, Meta + Apple, Perplexity, Automating iPhone Production, Novo Nordisk, and Inside Out 2

"the anxious edition"

If you realize that you have enough, you are truly rich.

—Lao Tzu, Tao Te Ching

😫 🐦 After discussing the film ‘Inside Out 2’ on Twitter (my thoughts on it later in this Edition), I had the idea of doing a poll about anxiety.

My goal was to learn the subjective view of those who answered, not to try to create a random sample representative of the general population of investors or whatever. There’s no right or wrong answer, it just is what it is.

One thing I realized reading the feedback is that low-anxiety people probably don’t fully comprehend how far anxiety can go for some people, so they interpret the question as “How many problems do you have in your life?” or “Is what you’re doing stressful?”

It’s easy for me to put myself in those shoes because my baseline is very low-anxiety and I used to not understand what anxiety was. I thought of it mostly as punctual worry or stress about something specific.

I have family members with high baseline anxiety, so over time I’ve come to understand it a bit better.

Anxiety. Made with Midjourney V6 💚 🥃

If you’re an anxious person, you don’t need reasons to be anxious. Your brain produces anxiety, and it can attach to almost anything. The weather, what someone said, how someone looked at you, how you may have a car accident, or your kid may fall down the stairs, world events, or how you don’t want to forget anything on your to-do list at work. Perfectionism and impossible standards can often be a symptom of anxiety.

Some periods in an anxious person’s life can have higher or lower anxiety, but the *baseline* is high (that’s why I phrased my question that way on Twitter). For some anxious people, their *baseline* is higher than the *peaks* for a low-anxiety person.

Some billionaires and movie stars may be very anxious while some people living in very poor parts of the world may experience very low anxiety. External triggers matter, but for very anxious people, I think the majority of their anxiety is internally generated.

The heuristic that I’ve been using to better understand anxiety is that it’s future-oriented. While depression tends to be backward-looking with a focus on past events, ruminations on old problems, or missed opportunities, anxiety tends to be about how things *could* go wrong in the future.

I like this ELI5 on Anxiety by Claude Sonnet 3.5 (I wrote my early thoughts on this new model):

Anxiety is like having a very sensitive alarm system in your body and mind. Here's how to explain it simply:

- Imagine you have a smoke detector in your house. It's supposed to warn you if there's a fire, which is good and helps keep you safe.

- But what if your smoke detector was super sensitive? It might go off not just for fires, but also for steam from your shower, or even just dust floating around. That would be annoying and stressful, right?

- Anxiety is kind of like having an overly sensitive alarm in your brain. It's supposed to warn you about danger, but sometimes it goes off when there isn't really anything to worry about.

- When this "anxiety alarm" goes off, your body reacts like there's real danger. Your heart might beat faster, you might feel shaky or sweaty, and you might have worried thoughts that are hard to stop.

- Everyone feels anxious sometimes, like before a big test or when trying something new. But for some people, the anxiety alarm goes off too often or too strongly, making it hard to do everyday things.

My hypothesis is that having low-anxiety is an advantage when it comes to the kind of long-term investing I do (multi-years on most positions — most of my portfolio has been invested in the same companies for 10+ years).

I don’t think it’s *necessary*. It’s one of many traits that can be helpful, but I suspect that it helps in staying detached and unemotional in the face of Mr. Market’s shenanigans.

🏛️⚔️ The Gallic Wars series on Caesar’s “masterwork of psychology, strategy, and propaganda” has started on the Cost of Glory podcast. Check out part 1.

I can’t wait for part 2!

📺📦 I will write more about ‘Dark Matter’ (Apple TV+, 2024) after I’ve seen the last episode, but having watched 8/9th of it, I can already recommend that you watch it if you like sci-fi grounded in the present (ie. This is closer to Severance than Star Trek).

It gets progressively better. The first 3 episodes were good, the middle 3 were quite good, and so far the first 2 from the last 3 were excellent.

I’ve also recommended the book by Blake Crouch in Edition #373. Crouch also wrote the TV show and expanded the story to better fit that medium, so even readers of the book will be surprised.

💚 🥃 🚢⚓️ If you’re getting value from this newsletter, it would mean the world to me if you become a supporter to help me to keep writing it.

You’ll get access to paid editions, the private Discord, and get invited to the next supporter-only Zoom Q&As with me.

If you only get one good idea per year, it’ll more than pay for itself. If it makes you curious about new things, that’s priceless.

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🏦 💰 Liberty Capital 💳 💴

🍎📱🦾🤖 Apple wants to further automate iPhone production (to make it easier to move out of China?)

Let’s begin with something that is often overlooked in discussions about Apple’s presence in China:

Most of the value in Apple’s products comes from outside China.

The majority of important physical parts, such as semiconductors, screens, flash memory, modems, sensors, etc — they come from the US, Germany, Taiwan, South Korea, and Japan. The very important software and IP mostly come from the US.

Final assembly and quality control is done on a gigantic scale in China, and many parts come from there, such as the battery, various parts of the casing, various electronic components, etc, but it’s not the whole story to describe Apple products as “made in China”.

Back to this story:

Apple’s senior vice president of operations, Sabih Khan, issued an edict to his organization, instructing managers to reduce the number of workers on iPhone final assembly lines by as much as 50% over the next few years, said two former Apple employees.

To accomplish that, Apple began greenlighting automation projects for its assembly lines that it had previously mothballed due to high up-front costs, they said. The efforts resulted in a significant amount of automation handling the final assembly for last year’s iPhone 15

Apple has been trying to reduce its reliance on China. This is a major way to make that easier:

If Apple can one day more fully automate iPhone production, it would be able to move more of its manufacturing operations from China to countries like Vietnam and India, where experienced manufacturing engineers are harder to come by, according to former Apple manufacturing managers.

This could even make it easier to bring back manufacturing to the US and other higher-cost markets.

This push for automation may already be having an impact on the labor intensity of Apple’s operations (which it sub-contracts to companies like Foxconn and Pegatron, but with a high degree of control and visibility over the processes):

Apple disclosed in an annual report on its supply chain that the total number of employees it monitors at its manufacturing partners for work-hour compliance shrank to more than 1.4 million in 2023 from a peak of more than 1.6 million in 2022.

It was the first time that figure shrank year to year in over a decade. The number of workers fell even as the number of factories Apple monitors in the report increased to over 380 from more than 300 a year earlier. (Source)

What will be interesting to keep an eye on is where that leads over time when it comes to the equilibrium between Apple and the CCP. Right now, Apple is treated differently than most other foreign companies by the CCP because it employs so many Chinese workers and creates a kind of manufacturing halo for the country.

But at some point, the calculus may change, and it may be in the CCP’s interest to make a move while they still have leverage — so chances are, Apple won’t get to make a smooth exit 🤔

🍎🤖Apple in talks with Meta, Google, Anthropic, and Perplexity for AI partnership

Speaking of Apple, the AI aggregation is underway:

Facebook’s parent has held discussions with Apple about integrating Meta Platforms ’ generative AI model into Apple Intelligence

In my previous post about Apple’s AI strategy, I said that I wasn’t sure about Meta because they haven’t been getting along. That relationship may be thawing a bit.

In addition to Google and Meta, AI startups Anthropic and Perplexity also have been in discussions with Apple to bring their generative AI to Apple Intelligence, said people familiar with the talks.

So basically, Tim Cook went:

The game theory (can we say that yet? has it been long enough?) is in favor of Apple.

Any AI lab that doesn’t partner with Apple will be at a disadvantage compared to the others when it comes to distribution to a very valuable slice of the market.

It would be a real coup for Perplexity (more on them later in this Edition) to be included since they are a hybrid aggregator/product themselves.

🧫🔬👩‍🔬🧪 ‘Novo Nordisk to build $4.1 billion North Carolina facility to boost output of Wegovy, Ozempic’ 💰💰💰💰

Semiconductor fabs occupy a huge amount of mindshare in the zeitgeist these days, but the biotech equivalent is almost as impressive in terms of cool engineering and sheer scale:

Novo Nordisk today announced plans to invest 4.1 billion US dollars to build a second fill and finishing manufacturing facility in Clayton, North Carolina [...]

the expansion will add 1.4 million square feet of production space for aseptic manufacturing and finished production processes, doubling the combined square footage of all three of the company’s existing facilities in North Carolina. It will also add 1,000 new jobs, besides the nearly 2,500 Novo Nordisk employees already working in the region, a central hub for innovation and biotechnology in the United States.

Isn’t it kind of crazy that they’re adding 1.4 million square feet but just 1000 new jobs? That’s 1,4000 square feet per employee.

I’m assuming this will be an extremely high-tech and automated facility…

Early clearing and foundational work are already underway to prepare the 56-acre facility footprint. Construction will gradually be finalized between 2027 and 2029. Around 2,000 external contractors will be engaged at the height of the project.

Hopefully, this will help lower the cost of these drugs in the US. So many chronic diseases are downstream from obesity.

However, I still wonder if there may be some side effects to drugs that can seemingly affect the psychology of addiction 🤔

ie. What about pro-social and beneficial ‘additions’, like the drive to build a company, to be obsessed with scientific discovery, or to practice guitar/piano/drums for 5 hours a day?

💵🔓 Microsoft ties exec bonuses to cybersecurity 🔑 ✋ 🏴‍☠️

When it comes to cybersecurity, Microsoft is in a “good news, bad news” position.

The good news is that thanks to their incomparable position in the enterprise world, they have an amazing distribution pipe for cybersecurity products. They already have a gigantic security business and it’s growing fast.

The bad news is that as the most common PC OS out there, they are the #1 target for every black hat, with the most surface area for attack.

And because they have such a huge legacy user base, with an incredibly varied ecosystem of software and applications — some of them older than dirt — that they have to keep supporting because the enterprise world doesn’t leave things behind as fast as the consumer world, there are all kinds of holes everywhere.

This leads to very bad headlines that competitors like Crowdstrike will gladly take advantage of…

Incentives rule the world, so this may help:

Microsoft will directly tie one third of performance bonuses for its 14 highest-paid executives to their success in improving the company’s cybersecurity, President Brad Smith told congressional lawmakers on Thursday. [...]

The hearing came hours after Propublica published an investigation that found that a flaw in Microsoft’s Azure cloud login software enabled Russian hackers to break into Microsoft customers during the so-called Solarwinds hack in 2020, contradicting a statement Smith made to Congress in 2021  that no Microsoft vulnerability was exploited in Solarwinds.

I sure hope Microsoft improves. Because so much of our civilization relies on their software, we’ll all benefit, even if we don’t use much Microsoft software directly.

🗣️🛠️🧰🪚 Interview: Frank Blake, former CEO of Home Depot

In Edition #494, I rec’ed the interview that Patrick O’Shaughnessy (☘️) did with Ken Langone. This is the follow-up to that:

• 🎧 Frank Blake - Leading By Example

He’s a great example of not confusing metrics and proxies for the actual thing. The examples he gives about fostering a culture of customer focus are great.

I also really like the clarity he has when describing the responsibilities of a CEO, and the downsides of being a CEO (You’re not funny but people will laugh at your joke… the institution doesn’t want to change and will fight your decisions, people won’t want to tell you when things are wrong, etc).

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🧪🔬 Liberty Labs 🧬 🔭

🎣 More fish is now farmed than caught wild 🐟 🍣

According to the USDA:

U.S. residents consumed an average of 20.5 pounds of seafood— finfish and shellfish—per capita in 2021. [...]

Over the last three decades… per capita seafood consumption grew 30% in this period, led by fresh and frozen seafood.

Growth in fresh and frozen seafood consumption per capita climbed from about 63% in 1990 to almost 80% in 2021.

In contrast, per capita consumption of canned seafood has declined from a 35% share in 1990 to an 18% share of the total seafood consumed nationwide in 2021.

Source.

🗣️🤖🔎📄 Interview: Aravind Srinivas, Co-founder and CEO of Perplexity AI

Lex can be hit & miss for me, but this one is worth listening to:

• 🎧 #434 – Aravind Srinivas: Perplexity CEO on Future of AI, Search & the Internet

I’ve been a big fan of Perplexity (see my early thoughts on Perplexity in Edition #471), and because it rides on top of other AI models, it keeps getting better over time — both as they ship new features and as new foundational models come out.

In Edition #507, I wrote about Anthropic taking the lead with their medium-size model Claude Sonnet 3.5. Well, on that same day, Sonnet 3.5 became available in Perplexity and it has been my default ever since — it’s significantly faster than Claude Opus 3.0 and GPT-4o while being about as good if not better (it’s always hard to tell).

In other words, Perplexity became better overnight, and they didn’t even have to do anything.

This dynamic is similar to Apple acting as an aggregator and distribution channel for various AI labs’ models (which I wrote about in-depth in Edition #504). They get billions of dollars of R&D and capex “for free” because they are well-positioned in the value chain. ⛓️‍💥👨‍🔬💰

🐴 Random fact: Approximately 90% of horse owners in the UK and US are women 🐎🙋🏻‍♀️

“In the US, 92.6% of horse owners surveyed in 2018 were female”

“Over 90% of horse owners are women in Great Britain”

“In Canada, 92% of equestrian sport license holders are women and girls”

Why?

¯\_(ツ)_/¯

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🎨 🎭 Liberty Studio 👩‍🎨 🎥

🎥 My impression of ‘Inside Out 2’ (Pixar, 2024) 🍿

I saw ‘Inside Out 2’ with the kids. I really liked it. I thought it was probably the best Pixar film since Toy Story 4 in 2019 (Luca in 2021 was also good, but I think I’d rank this one higher).

Recommended 👍 👍

🚨 **Mild Spoiler Line** 🚨

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It’s not as innovative and surprising as the original because it goes over some of the same concepts and environments and some of the ‘adventuring across the brain’ stuff felt a bit stale compared to the first one, but the ‘sarchasm’ and ‘brainstorm’ made me smile.

They did a really good job of dealing with more complex and nuanced emotions.

Hopefully, kids with high anxiety get some vocabulary and metaphors to start thinking about what they’re going through. And those of us who are lucky to have low baseline anxiety can hopefully better understand and empathize with those who are dealing with this orange character in their heads.

The climax of the film worked for me. That blur!

It didn’t pull on my heartstrings quite as much as Bing Bong in the original, but man, someone was cutting onions… 🔪🧅