Investment Biker, Jim Rogers

Key take aways

  • Central investment thesis:
    • Always bet against the central banks and with the real world
    • truly down trodden people do not rise, but hell hath no fury like suppressed peoples whose expectations have been aroused
    • people don’t change their ways until their are forced to
    • while it is easy to figure out an investment is cheap, the real work is figuring out if a change is about to occur in the near future. It is important to study markets and their history
    • when seeing a big change coming (the opening of the trans Siberian railway), consider the economic, political and social shift
  • modus operandi
    • Why buy a new sofa when it could be put to work in the markets
    • Only invest in what I can sell quickly
    • do nothing until you can see the money to be picked up around the corner
  • key areas of study
    • geography
    • politics
    • economics
    • history
  • Company assessment criteria
    • Price to book value
    • sound balance sheet
    • pay dividend
    • Price to earnings ratios
    • Viable industries
    • start with largest soundest enterprises
      • banks
      • mines
      • news papers
  • On assessing countries
    • Watch out for statism – governments getting in the way of an organic market
      • democracy does not equal prosperity
      • US government piling more and more regulations
      • SnL crisis of the 1980s
      • Artificially suppressed prices
        • 1970s gold in America
        • 2019 prices of pork in China
      • Foreign aids (IMF, UN and Peace Corps) just props up a system that does not work and delays the actual rebuilding process. Have faith in the locals to rebuild themselves in a configuration that works for them as opposed to a system suited to foreigners liking (hubris)
    • On ethnic strife and separatism
      • Some geographical boundaries don’t make sense.
      • no borders remain stable for long
      • economic hardship will bring to surface these fault lines as they get used as a vehicles to get more
      • Wait till wars are fought and border issues sorted out. It might then become a great investment opportunity to enter at the bottom
      • examples
        • Rise of Islam and Christianity in Siberia prior to Soviet collapse
        • Hong Kong riots
        • Barcelona declaration of independence
        • XinJiang, Tibet
    • black markets as signals: difference between black markets rates and official exchange rates provide an indicator of how much the central bank has propped up the exchange rate. Minimal to no differences are signs of a strong economy
    • major red flags:
      • currency controls, import taxes, export restrictions. Makes it hard to pull funds out
      • is country trying to devalue its way out of its internal problems instead of doing a proper fix?
      • frantic purchase of gold in local jewelry store
    • Positive signal:
      • Is the country trying to get foreign hard currency by making things other people want to buy – quality goods
      • Is the country learning to compete and out innovate its competition
      • an educated population
  • On centrally planned economies
    • the market feedback mechanism is missing
    • resources get ruined due to misuse
    • it would have thrive if it was a sound economic theory
  • On China
    • while Russia abused their resources, China having nowhere to go were more deliberate and took better care of their resources
    • success had a lot to do with economic and political organization
    • example
      • took bees to blooming flowers to work them 5-7 times harder than their foreign counterparts
    • Hong Kong, Guangzhou and Shanghai being captured by the capitalist spirit generally ignores capital’s policies
  • Note worthy collations
    • China (labor) / Siberia (natural resources)
    • Australia (natural resources) / Japan (capital)
    • US (capital) / Canada (natural resources) / Mexico (labor)
  • On commodities
    • most local markets will eventually get assimilated into the global market
    • diamonds have artificially propped up prices that will be hard to maintain in the long run. DeBeers will eventually run out of cash buying up supplies from the black market and it will lead to sudden price collapse. Opt for gem and rubies instead
    • when gold gets too cheap companies will figure out ways to use it thereby depleting its supply driving up price. Same could be said of oil
    • underlying structural issues within a country can stay hidden for long during times of a commodity boom
  • The key to success
    • out of every 1000 people who wants to be rich only 6 can master the discipline to do so
    • stay focus on a single goal for five, ten, twenty years

Related readings

Lee Kuan Yew, Interviews and selections by Graham Allison and Robert D Black Will with Ali Wyne

Key take aways

  • An political system that yield’s inferior economic performance will ultimately be discarded
    • leadership succession is the most part of any political system
    • contest between great powers in the 21st century will over economy and technology as opposed to military
    • The war for talent is the most critical competition in the 21st century
  • Three attributes vital in competition between nations and companies
    • entrepreneurship
    • people’s innovativeness
    • management
  • Core competencies for workers in the future
    • own control system
    • self supervision
    • responsibility to self upgrade
    • self discipline
  • Globalization cannot be reversed
    • the underlying driver is technology
    • better and cheaper transportation and communication will only accelerate its pace
  • On leadership
    • learn to ignore (quasi) experts and their pet theories
    • ignore how people will judge you, especially news
    • a popular government does not need to be popular all the time. Just make at the end of each term sufficient benefits have been realized from the unpopular decision
    • if no one is afraid of you, you are meaningless
  • On balancing society
    • when a society is too geared towards competition then group solidarity becomes weak
    • when a society has wealth that is too evenly distributed there is no incentive for the individual to make progress
    • no two individuals are equal
  • Elements needed for social progress
    • determined leadership
    • efficient administration
    • social discipline
  • On governing
    • find practical, not doctrinal, solutions to our problems of growth and development
    • get things done and leave others to extract principles from my successful solutions
    • if same solution is observed to work multiple times then it makes sense to spend time extracting the underlying principles (quite similar to George Soro’s practice of invest first and research later)

On China

  • China will reorganize, reeducate and train themselves to become a high tech society within 50-100 years. Main advantage is in economic influence
  • Key challenge for China over the next 30-50 years is the ability to attract talent
  • China’s official language is Chinese is a very arcane one. The world’s knowledge is all encoded in English. This presents a great barrier to China’s ability to attract and assimilate talent

On America

  • Its key advantage is its frontier society mindset.
    • An entrepreneurial culture of continuous self disruption
    • 1980s Japan and Germany eclipsed America in manufacturing before it came roaring back
    • individualistic and nonconformist society which encourages more extreme and random behavior which results in more creativity and inventiveness
  • Ability to attract and assimilate talents from around the world

On India

  • Too much red tapes

On terrorism

  • Is less a concern of Muslim versus the west but more modern Muslims versus radical muslims

Related references

  • The Fatal Conceit: Errors of Socialism, Friedrich Hayek
  • The alchemy of finance, George Soros

Federal Reserve chairman testifies before Congress 20191113

Economic indicators

  • Inflation is at all time low
  • Unemployment is at all time low
  • Consumer confidence is at all time high
  • Productivity has slowed down
  • Business  investments and manufacturing has contracted

Key take aways

  • China is doing a responsible job deleveraging it’s economy. This is one of the key drivers of economic slow down around the world apart from the ongoing US/China trade war
  • Global deflationary trend drivers
    • partly driven by worldwide aging population which sees increased savings rates and lesser consumption
    • automation and globalization
  • Ballooning US debt is a concern. Need to bring debt growth rate below productivity growth rate to be sustainable in the long run
  • The effects of the sugar rush from the 2017 tax cut is still evident within the economic system
  • Negative interest rates only makes sense in a large economies where growth is really sluggish. That is not the case for US where growth is strong and productivity is still high.
  • Need to focus on education to prepare work force for the global economy
  • US GDP is growing at 1.5% of which 0.5% is contributed by immigration

Related references

 

Examples of various networks failing at scale

Most solutions will inevitably break when used at scale. These are two recent examples.

AirBnB’s network scales to extend it starts disrupting entire neighborhoods

https://www.bloomberg.com/news/articles/2019-11-06/miami-beach-airbnbs-top-market-in-u-s-as-charlotte-grows-rapidly

Political campaigning on social media gets way out of control after politicians attempt to scale up the method which got President Obama elected to office 

https://www.bloomberg.com/news/articles/2019-11-07/google-considers-changing-its-political-advertising-policy

Technology eco-system scales up operations in California thereby triggering the housing crisis.

https://www.bloomberg.com/graphics/2019-california-housing-crisis/

Moderation and self restrain is not common when caught up in a winner takes all situation

 

Crypto-currency exchanges

Business model

  • Pricing model
    • USD 80K initial listing fee
    • fees on each transaction
  • Enterprise sales acquisition approach
    • acquisition channels
      • LinkedIn
      • Crypto-conferences
    • Cost
      • USD2500/month for sales staff
      • USD4000/month for engineers

Landscape

  • Over supply of exchanges versus crypto projects
    • Crypto-currencies have tanked in 2019
    • There are more than 2000 exchanges right now
    • 20 new currencies are minted each month
    • There is a lack of differentiation between exchanges
  • crypto projects are reporting an exceeding high level of failure rates
    • due diligence traditionally handled by VCs for traditional startups are left to end consumers for crypto projects
    • most projects do not have a sound use case
    • teams tend to be poorly managed
  • Uneven playing field
    • US media’s extensive distribution network is the primary advantage of US based exchanges
      • Binance is the largest exchange
      • Binance ability to tap into engineering talent in US has allowed it to be the trail blazer helping it garner constant media attention
    • Chinese crypto-currency companies are attempting to penetrate US and Europe by hiring talents with fluent in English

Complementary assets for Biki

  • Parent company’s crypto news portal
  • Parent company’s engineering knowledge in building exchange software

Federal Reserve interest rate cut decision 20191030

Outcome

Core inflation at 1.8% continues to run below target 2%.

Federal reserve decides upon another 0.25% cut in interest rates, targeting range of 1.5% to 1.75%.

Action is taken to provide meaningful support to the economy in response to global economic slowdown and the increasing disinflationary pressure felt from around the world. The special characteristics of this particular slow down is a lack of any large imbalances in the economy.

Dual mandate of the federal reserve

2% symmetrical inflation target

  • Stable prices
  • Low unemployment rates

economic indicators

  • Consumer confidence remains strong
  • Unemployment rate is at historic low
  • Business fixed investments has slowed
  • Global exports has slowed
  • Manufacturing compared to a year ago is down

macro environment risk

  • protracted US/China trade risk is down
  • No deal Brexit risk is down

economic health monitor

  • Leverage in financial system: low
  • Funding risk in banks and non-banks: low
  • Asset prices: no major bubble, high in some
  • Leverage in non-financial sector
    • households:  gone down
    • businesses + corporate debts: historic high

Liquidity concerns

  • Concerns in Overnight Repo markets persist.
  • Banks have liquidity in excess of required reserves level but choose not to participate in the markets.
  • Federal reserve will seek to inject short term liquidity into the system
    • build up short term treasury reserves
    • buying into short term treasury bills thereby boosting treasury reserves
    • opposed to the standard QE mechanism which entails buying up of assets and securities with longer maturity periods

Related readings

Microsoft university penetration strategy

Tools of the trade

  • content marketing like documentation and tutorials on how to use tools
  • Speaking at events as first point of contact for lecturers and TAs
  • Sponsorship through hackathons
  • direct outreach to educational TAs
  • support for student mentorship programs

Acquisition

  • Reach to TAs to try out tools for free
  • Setup booths at hackathons and conducting workshops
  • Train student on the use of MS tools so that they can become successful mentors – GitHub strategy
  • Provide budget for student groups who want to organize learning sessions involving how to use the tools

Feedback mechanism /

  • track the conversion rate of documentations visit to corresponding sign up levels
  • track time on documentation
  • listen for feedbacks when interacting with students during hackathons to figure out portions of the documentation that are confusing

Metrics

  • track YoY student traffic usage during lull periods to determine if baseline is improving.

PCG misexecution from blackouts and Kincade fire

Characteristics of mis-execution

Technical aspects

  • GAP down occurred of more than 5%
  • MACD was still negative trending
  • negative trend is yet broken.

Fundamental aspects

  • Failed to account for seasonality:
    • Fire occurrence during summer and autumn is rampant.
    • strong wind
    • global warming
  • Doubled down when negative trend has yet been broken

Long term reversion to mean patterns

A list of long term reversion to mean patterns observed. General characteristics are:

  • steady negative trend line broken
  • Seeing higher lows
  • MACD signal line turns positive and trends upwards
Zillow does a pivot in both its product and pricing models.
Square sells off its food delivery business unit for USD500 million cash and double down on its consumer and enterprise business
Splunk changes its pricing model from licensing to SaaS base monthly subscriptions
DOMO gets disrupted by entrance established competitors Google (Looker) and Sales Force (Tableau)
Stamps attempts to pivot its product configuration and gets disrupted by USPS