Education is a technology that tries to make up for what the human mind is innately bad at.
Children don't have to go to school to learn how to walk, talk, recognize objects, or remember the personalities of their friends, even though these tasks are much harder than reading, adding, or remembering dates in history.
They do have to go to school to learn written language, arithmetic, and science, because those bodies of knowledge and skill were invented too recently for any species-wide knack for them to have evolved.
—Steven Pinker
Self-education is, I firmly believe, the only kind of education there is.
—Isaac Asimov
(and by that I think he meant that even if you’re in school, you still have to do the learning yourself, and someone can’t be made to learn something against their will — or at least, it won’t stick..)

🤔 I don’t have a real job, and I follow relatively few businesses, yet I have trouble keeping up with all the transcripts of earnings and presentations that I want to read.

How do investment professionals who have large coverage universes, positions in dozens of companies (and they’re expected to know every competitor to each), and need to be on meetings and Zoom calls with coworkers and bosses and HR all day do it? Is everybody just way more productive than I am? Are they pretending to read it all but actually just look at a few KPIs/analyst reports and skim the rest? ¯\_(ツ)_/¯

🛀1 Expectations matter a lot in life2. If you recommend a good movie to a friend but aren’t careful to manage expectations, they may not like something that they otherwise would’ve really enjoyed.

When I started this newsletter project. I explicitly wanted to be eclectic from the start, and make it clear on the about page that I would cover all kinds of non-finance stuff, because it’s a lot easier to do this upfront than to start a financial newsletter and then progressively try to write about Deadwood and Soviet subs and weird tree outgrowths and Icelandic cathedrals and whatever weird crap I usually write about. You’d be fighting expectations all the way…

So thinking about this, I suddenly realized there’s another expectation pitfall:

If I ever have a period where I’m just in the zone, go full Midas for a few weeks and produce the Liberty Greatest Hits for some reason, then expectations will be raised, and as I revert to my pitiful mean, I’ll just leave a trail of disappointed readers in my wake…

See, even when considering the possibility of being good, if only temporarily, I can’t help by see the downside. That’s what you call a gift.

🌳 On Wednesday, I spent 3+ hours walking in the woods, in conversation with the artist known as ‘Mostly Borrowed Ideas’ — great dude, as nice as his posting online would lead you to believe, and wicked smart too. He’ll go far, in large part because he’s one of those rare specimen that actually thinks with a long-term view.

I signed up for his MBI Deep Dives newsletter (the business model: one detailed company analysis per month).

Why had I not signed up before? Because I knew he was moving close to where I live, and I wanted to do it in person.

We live in a digital world — especially me and him — and everything we do is intangible and in the ether, so I wanted to hand him a bunch of physical dollars 💵 to mark the occasion and make it feel more real to him that his business has customers who want to pay him money for his insights and all that.

I think at first he thought it was weird, but then he said something like “yeah, you’re right, I think I’ll remember this sign up more than any other”.

So mission accomplished, I guess.

Twitter remains undefeated at allowing me to meet good people that I would never have gotten to meet in a world without having everybody with similar interests at 1-degree of separation from each other.

Liberty 💚🥃 @LibertyRPF

@borrowed_ideas It's like when a TV show has a crossover episode and characters from one show pop up in another show, but for Twitter accounts!

Investing & Business

Okta Buys Auth0 for $6.5bn

Okta is buying Auth0, joining the two identity management companies in an all-stock deal worth $6.5bn.

Okta CEO Todd McKinnon wrote:

Auth0 will continue to operate as an independent business unit inside of Okta. Both platforms will be supported, invested in, and integrated over time.

I don’t know enough about Auth0 to intelligently comment on this either way, but what jumped at me in all this was:

Auth0 last raised private capital in July at a $1.92 billion valuation. Salesforce Ventures led the round, more than tripling its money in eight months.

I get that there’s a control premium on these things, but I’ve seen this pattern so many times lately (like how Snowflake privately raised at $12bn and a few months later went public and shot up to $60-80bn), it’s getting worrying.

Either someone really underpaid, or someone is overpaying, or Auth0 feels that Okta stock is overvalued (“I’ll buy your $10,000 dog, and pay you with two of my $5,000 cats”), probably a mix, but something is going on…

Diving Deep: Topicus (Constellation Software Spin Out)

In edition #93, I featured a good writeup about Constellation Software. The author, known as The 10th Man, has a new one about the recent CSI spin:

TOI:TSXV (Topicus)

Some highlights that give an overview of his thesis:

TOI is roughly the size of a 2010-vintage CSU. They’ve reset the clock on M&A, and it should be much easier for TOI to scale the number of acquisitions they complete in a year by five-fold than it will be for CSU today. All else equal, inorganic growth should be easier to come by.
The directors appointed by CSU (six of the ten) are more likely to approve of large acquisitions (by lowering hurdle rates) than they were at CSU from 2010-2020. This should mean fewer distributions to shareholders over the next decade, and higher growth.
The vast majority of TOI’s revenue does and will come from Europe over the foreseeable future, and it’s my view that Europe has: a significantly more fragmented VMS market, with many local market leaders; less private equity dollars chasing acquisitions, particularly on continental Europe; and, a culture that makes VMS sellers more likely to partner with perpetual owners like TOI than transient owners like private equity.
Topicus.com achieved historical organic growth >10% vs. organic growth at CSU and TSS of <2.0%. The CEO of Topicus.com will become the CEO of TOI, and I suspect he will increase the emphasis on organic growth at the other TOI Operating Groups. As a result, TOI is likely to have higher organic spending, and the data from Topicus.com shows that this organic capital earns a ROIC that’s fairly close to that of acquisitions.

I found this pretty interesting, in a more zoomed-out, macro way:

Crozdesk published a report in 2018 that evaluated ~20,000 software companies around the world. They found that Europe was home to 22% of software companies in their universe, but received only 5% of global funding (governments, family offices, venture capital, etc.), whereas North America was home to 63% of companies in the universe but received 89% of global funding

‘The winning product becomes the best product’

Thought-provoking thread on "myths of early stage startups" by Sriram Krishnan:

The winning product becomes the best product
Companies that take a big market share are able to double down on R&D which gives a significant advantage in the long term
Marketing is instrumental in making a winning product - case-in-point, the relatively weaker Intel 8086 processor was branded as a more comprehensive solution, making it the IBM PC’s brain & knocking out its competition
Figuring out distribution is huge- product with the most distribution wins.
Google signed two distribution channel AOL and Yahoo where they bought distribution

🙃

Tidefall Capital, One Year Later 🥳 🎂

Friend of the show Trevor Scott wrote about his first year running his own fund.

I remember a while ago when we were talking about all the paperwork and lawyering necessary to get started… Big congrats on one year (it was actually January 21st, but close enough)!

Good use of the Bezos regret-minimization framework. I guess a global pandemic being your baptism-by-fire is a pretty good stress test of resolve and resourcefulness:

Fortunately, I had followed Covid somewhat closely and had bought put options of Royal Caribbean as a hedge. Cruise ship passengers skewed older and the tight communal living conditions were a perfect viral breeding ground. If Covid were to spread, I was confident that cruise demand would collapse and when combined with their levered balance sheets their stocks would get crushed, making our put options worth multiples of what I paid for them.

You can read the whole thing here:

Launching A Hedge Fund: My Story

Interview: Ryan Petersen, Flexport

I don’t know where I first heard Ryan speak, but ever since, I’ve just had to click on every podcast interview of him that I found.

I haven’t seen Flexport’s financials, so I can’t be sure how well the business is doing, but based on what I know of him as a CEO and as a person, I like him; he’s thoughtful and ambitious and working on hard problems that actually make the world better even if not in a way that is as sexy as some of what the other celebrated entrepreneurs are doing…

I mean, what’s a higher calling than trying to shift an opaque, paper-based, trillion-dollar industry to a more transparent, software-based model that makes entrepreneurship easier? And on top of that, the Flexport Foundation has been doing great work during the pandemic.

Anyway, good interview by Patrick O’Shaughnessy:

Ryan Petersen - Where There Is Mystery, There Is Margin

I love the quote from Peter Kaufman that they used as episode’s title. Reminds me of a variant that Brent Beshore was saying (don’t know who came up with it) about “where there’s much, there’s brass”.

Off-topic, but I wonder exactly how fast Ryan types, because his Twitter username is @typesfast.

Terry Smith’s Fundsmith 2021 AGM Video

(Don’t be scared off by the interviewer’s face being so close to the camera at first, it gets better)

Factors Crossing the Streams This Week

Science & Technology

‘As border skirmishing [with China] increased last year, malware began to flow into the Indian electric grid’

Early last summer, Chinese and Indian troops clashed in a surprise border battle in the remote Galwan Valley, bashing each other to death with rocks and clubs.
Four months later and more than 1,500 miles away in Mumbai, India, trains shut down and the stock market closed as the power went out in a city of 20 million people. Hospitals had to switch to emergency generators to keep ventilators running amid a coronavirus outbreak that was among India’s worst.
Now, a new study lends weight to the idea that those two events may well have been connected — as part of a broad Chinese cybercampaign against India’s power grid, timed to send a message that if India pressed its claims too hard, the lights could go out across the country. (Source)

Yikes.

h/t Jordan Schneider (Check out his Chinatalk)

‘When It Comes to Vaccinations, More Is More’

Sins of commission and sins of omission are often treated differently, but it’s not clear they should be. [...]
As I understand the Food and Drug Administration and the Centers for Disease Control, they worry much more about sins of commission than about sins of omission.
The FDA, for instance, still has not approved the AstraZeneca vaccine, or outlined a clear path to approval, although it is approved in many other developed nations, including Canada, and the recent evidence on safety and efficacy is strongly positive, even for a single dose. The result of the FDA’s sluggishness, quite simply, is thousands of additional American deaths, for no good reason. [...]
Most citizens care about the total number of military casualties from a battle and are only modestly concerned about the details of the mistakes that caused them. That seems like the right and rational attitude. Perhaps it is also the correct attitude for the war against the coronavirus — that is, an overriding concern with casualties and outcomes, regardless of the kind of error that led to them. (Source)

To be clear, I don’t think the goal here is to go YOLO and just approve anything as fast as possible without the proper checks (I totally get that screw ups can have large repercussions on public trust in vaccines, etc).

The idea is just to make sure that we’re hitting the right balance and aren’t heavily skewed in favor of avoiding sins of commissions by giving more weight to some people’s career risk or embarrassment over the actual lives of vulnerable people who could’ve been saved with a different balance of risk/rewards.

As usual, there’s such a thing as going too far in either direction.

h/t Ben Thompson

Solar is just nuclear power with better PR

Byrne Hobart @ByrneHobart

People claim solar power is environmentally friendly, but they don't like to tell you that the key raw material—a known carcinogen—is blasted through 92 MILLION miles of untouched wilderness, nonstop, 24 hours a day.

The great fusion reactor in the sky!

The Arts & History

Shrek’s Uneven CGI

Maybe because I posted about Shrek’s Law for computer-generated film rendering in edition #98, but the next movie night with the kids, I decided to show them the original Shrek (2001).

It does show that it’s been 20 years (wow, time flies — some of you reading this may not even have been born when it came out), but what intrigued me most is how unevenly it has aged.

Some sections of the film look like a video game that would have run on my Pentium 3, and some sections look quite a bit better when it comes to the animation, lighting, complexity of the models, etc.

I have a couple guesses:

Maybe different teams worked on different sections, and the team that worked on the forest and swamp just wasn’t as good as the team that worked on the castle with the dragon.

But I think it’s more likely that at the time, doing a CGI film was so new and the technique and tools were evolving so fast, that the scenes they did later in the process benefited from that progress and it shows.

I’m not saying everything in those is perfect (certain effects like fire look rough compared to what we can do today), but if you watch it, try to notice how flat the lighting is, and how simple some of the models are in the the forest and the swamp, and then how much better it gets in the dragon’s castle with all the shadows and glowing red lava and red light seeping through the blueish areas.

I also think I can see how certain scenes early in the film were done later (mostly short scenes that stitch together longer scenes, with a “wider” lens to show a nice landscape), because they have much higher complexity and detail.

I don’t know. Maybe I’m dreaming all this…

‘Behind a frozen Minnehaha Falls in Minneapolis’

I just thought it looked cool. Source.

1

This is my marker for “shower thoughts”, for those who are confused and missed the first time I mentioned it.

2

I remember this being a great read on the topic of expectations: ‘Why Generation Y Yuppies Are Unhappy’.

Liberty’s Highlights

99: Okta + Auth0, Topicus (Constellation…