Book summary: What it takes, Stephen Schwarzman

Profile

  • Partner at BlackStone

Personal effectiveness

  • the bigger the goals the more significant the consequences
  • since you can only do one important thing at a time, always pick the most important one to start with
  • most important lessons are learned at inflection points between when failure turns into success
  • the best executives are made not born, they absorb info, study their own experiences, learn from mistakes and evolve
  • The goal of education (questioning and thinking) as a discipline is to learn how to think, it only ends when you die
  • there are as many realities as individuals, study more individuals
  • find a great mentor
  • Cultivate inner fortitude: Helps preserve morality and ethics in the face of fear and greed
  • The harder the problem the more limited the competition
  • The first job is foundational. Always look for one with a steep learning curve and strong training.
  • when caught in a tight spot, don’t become fixated on your own problem but on someone else’s
  • when seeing a huge transformative opportunity don’t worry that no one else is pursuing it.
  • never get complacent
  • make decisions when you are ready not under pressure
  • objectively assess the risks of every opportunity.

On finance and trading

  • master uncertainty: finance is a dynamic world where you will need to adjust to situations, people and new information quickly
  • build a model to explain a certain phenomena and then test it
  • do not mistake interest in making money versus interest in psychological comfort
  • market tops
    • loose credit conditions and a rising tide
    • buyers generally overconfident
    • number of people you know who become “accidentally” become rich
    • number of IPOs increase at the top, so does the valuations and size
  • market bottoms
    • very hard to bring companies to IPO
    • difficult to detect
    • markets are declining and economy weakens
    • most buy too early or under-estimate the severity of recessions
    • usually takes a year or two for market to get out of recession. even then asset value takes time to recover
    • risk is the least after a crash
    • best time to enter is after position has experienced 5-10% recovery from a crash
  • practice discipline and sound risk assessment
    • wait till the cycle fully plays out
  • Cycles are powered by supply and demand characteristics
    • understand and quantify them
    • e.g. real estate top is when building is valued significantly above replacement cost
  • Sometimes a trend especially negative ones will exhibit symptoms spread across various territories (escalating land prices Spain, India and US prior to 2008)

On building a company

  • fund raising from an LP for a new fund you are starting yourself will be harder than the prior company whom the LP already has a relationship with.
  • make sure there is not sole decision maker for important decisions to avoid getting blind sided
  • Accessing an idea
    • big enough for you to devote your life
    • unique enough as an offering that people will want it
    • timing must be right
  • transition from gut to system during the middle of the life cycle to continue further scaling
  • a business is an integrated system. Understand how one part works by itself as well as in relationship with other parts. Information is the most important asset in business

On management

  • being a strong and accurate accessor of talent is the most critical skills of entrepreneurship.
  • look for cultural fit.
  • Get the candidate into conversation mode
  • its as hard to start and run a small business versus a big one. Choose one with potential to be huge. Why waste time asking for 5-10 million USD when you can ask for 50-100 million USD?
  • find people who sense problems, design solutions and takes the business in new directions
  • be proactive in addressing personal differences over day to day operations

On deal making

  • ultimately comes down to a few key critical points
  • clear away the clutter and focus on these points to be effective
  • learn to slow things down
  • practice intense listening

Related readings

  • Outliers, Malcom Gladwell

Book summary: George Soros the unauthorized biography

Profile

  • Founder of quantum fund

Key take aways

  • There is a gap between perception and reality
    • Its the distortion that shapes events
    • Market participants operate with biases and these biases influence the course of events
    • Market prices are always going to be wrong because its offers a biased view of the future
    • biases works both ways
    • biases are self reinforcing, overreaction happens
    • boom and bust are attributed to the flux and uncertainty due to this gap
    • since the market is always wrong if you follow everyone else, you will perform poorly
  • On risk taking
    • Its alright to take risk
    • When taking risk don’t bet the ranch
    • Once you know what the market is thinking, bet on the unexpected
    • look for a sudden change in the market not yet identified by anyone else
    • develop a thesis and test it on the market
    • take a position where you have time on your side
    • learn how to survive
    • Attain superior long term returns through preservation of capital and home runs
    • Its not whether you are right or wrong but how much you make when you are right and how much you lose when you are wrong
  • On positions
    • be willing to endure the pain of following your logic when everyone else is going the other way
    • pick the best and worst performers in an industry
    • if your investment is going well, follow your instincts and go with all you’ve got
  • To avoid
    • lopsided trend following is necessary to produce a violent market crash
    • investors trying to influence prices by acquiring a large position in a currency will face disastrous results when position is sold
  • At times gut feelings will need to override logical analysis
  • gain access to world leaders for better insights

Related readings

The alchemy of finance by Georgo Soros

  • A gap exists between perception and reality
  • The theory of reflexivity
    • herd mentality dictates that the market driven by momentum will eventually over extend itself.
    • the herd will eventually realize its over extension and revert to mean
    • however momentum will once again do its work and result in over extension in the opposite direction
  • at times you will need to be somewhat schizophrenic by keeping in mind two equally plausible but conflicting mental models and predictions while doing your trade.
  • What matters most is your gain when you are right and your losses when you are wrong
    • When you know you are right, go for the jugular
    • it is the correct but non-obvious trades that generate the most outsized returns
  • A country with poor fundamentals, high level debts and limited foreign reserves will have limited ability in propping up its foreigns reserves much as it attempts to do so
  • maintaining a wide network spread across multiple territories will help in forming a better informed mental picture on the state of things

Corona Virus versus SARS virus

2002 SARS outbreak

  • Fatality rate of SARS virus is 9.6%
    • Total infected: 8,098
    • Total deaths: 774
  • SPY from start to lowest is a drop of 11.28%
  • SPY ended SARS period 8.5% higher than starting period

2020 Corona Virus outbreak

  • Fatality rate of Corona virus: 3%
    • Total infected: 2900
    • Total deaths: 81
  • SPY from peak to latest dip: 2.02%

Ebola outbreak

  • Fatality rate of Ebola virus: 50%
    • Total infected: 28,646
    • Total deaths: 11,323

Related references

Chat with Joe and his dad

On Kaoshiong

  • KaoShiong is where the bulk of industrial manufacturing occurs
  • Taiwan is a Japan trend follower

On strategy

  • When macro economic environment is not conducive for continued operations, stop operations to conserve resources for future opportunities.
    • Decision to close wooden frame manufacturing factory
      • Europe became more environmentally conscious
      • Malaysia reduced the yearly quota of timber to be harvested
      • These two trends reduced demand for wooden frame and increased cost of raw wooden material

On personal growth

  • Adversity in youth provides an opportunity to build character and gain experience.
  • restricting the amount of resources your offspring has access to might be a good thing but it breeds resentment
  • Good things come from seemingly bad experience too

on DDP policy in KaoShiong

  • Too radical in their actions and lacks calibration in their policies. Really good at manipulating the press
  • Stance
    • Anti China
    • Pro resource less young
    • Pro taxing businesses for social welfare
    • Pro reducing pension to retired
  • Equally corrupt as the KMT but too aggressive in their policies leaving nothing for the business to continue operations
  • manufacturing businesses has been negatively affected with over regulation and rising administrative cost
  • Worker protection makes overtime illegal severely restricting the throughput volume businesses are allowed in their operations
  • Workers not making enough from their day job due to such restrictions are forced to take on a second job on top of their main one
  • 30,000 to 40,000 businesses have failed within the KaoShiong area over the past 12 months at the point of writing with more set to fail if policy should persist
  • While GDP growth rate has been reported at 2% in 2019, shipping volume through KaoShiong has continued to drop

On KMT

  • A more mature party with measured policies which lost leadership due to lackluster performance
  • Stance
    • Pro-China
    • Pro-business
    • Pro-protecting pension of the retired

Social security system and the aging population

  • Social security system is in a state of flux. Employers are required to contribute to two systems. The contribution for the old system is 5X the new system and was too much overheads for the employers.
  • Retirees are concerned their pension will get cut while the young are concerned their contribution to the social security system is to heavy a burden

On China

  • China has imposed restrictions on independent Chinese tourist to Taiwan
    • Chinese tourist are easy customers who engage in indiscriminate spending
    • Night markets looked empty
    • Quite a few restaurants have closed down along the main street due to the lack of tourist spending
  • The bulk of Taiwan’s export has been to China it makes economic sense for both territories to become unified
  • noteworthy to observe Joe’s shift to a pro Chinese stance the on Chinese Taiwan relationship as compared to the high school days.
  • Observation of Taiwan style politics in contrast to Chinese style politics leads me to have reservation about how these two systems can be resolved.
    • the Taiwanese have no reservation with injecting outrageous humor into the legal framework afforded to them by their political system with candidates as outlandish as Mr Crazy Friday and Mr Fortune God
    • China’s one country two system need to become more robust for this undertaking
    • Recent HongKong riots has caused concern for Taiwanese and has lead to increased support for the DDP whose leader English Tsai is known to be a strong negotiator

On Korean Japan trade war

  • Huge influx of Korean tourist observed during this period of tension (Sept 2019)
  • Korean tourist are more discriminate in their spending, hence a lower per capita spending as compared to the Chinese tourist.

Dinner with Mansu

On financial industry

  • Lots of quant funds operating within the South Korean market
    • Very fund has its own strategy and model
    • Things will work until they don’t.
    • The long tail where shit happens can be very fat
    • Funds tend to graduate towards excessive leverage overtime. This is the nature of an industry largely driven by fear and greed
  • KoStar, Korea’s equivalent to Nasdaq is the exchange of choice for Quant operations
    • illiquid/inefficient
    • more volatility
  • Merrill Lynch in South Korea
    • their two largest clients are quant funds
      • Citadel capital
      • Susquehanna Capital group
        • drives 10% of all daily transactions on the Korean stock market
        • up to 100 times per day on each listed company
    • client requirements
      • lesser demand for sales and account representatives
      • demands for high throughput cable connection to their exchange networks
    • client technology stack
      • large scale utilization of neural networks
    • Equities sales representative teams has been reduced from 8 to 3 over the past year
  • On valuation and economy
    • Multiples are becoming exceedingly high given free money provided by Federal reserve and central banks around the world with low to negative interest ranks
    • largely driven by decoupling of interest rates and inflation
    • global deflationary pressures
      • aging population
      • productivity driven by technology proliferation
    • asset prices will contract when interest rates increases

On real estate industry

  • property prices has more than doubled in prime Gangnam area in Seoul over the past 4 years
  • In times of economic recession property valuation at the center of premium districts will remain stable while those at the fringes will become soft
  • segments within the prime Gangnam area
    • integrated apartments
      • situated in complexes with amenities day care services and grocery stores
      • USD1000/sqft – USD1 million for a 3 bedroom apartment
    • normal apartments
      • up to 16 units within a building
      • USD700/sqft – USD750K-800K for a 3 bedroom apartment
  • While governments of both Japan and Korea are trying to further decentralize urbanization across their countries, organic tendency thus far has been towards centralization. Seoul and Tokyo occupy major proportion of the population with smaller townships in the outer fringes dying out. Same thing is observed with San Francisco, coastal cities of Australia and Auckland in New Zealand.

Shifting population and resource equilibrium

Phases in the cycle

  • economy booms
  • competition for resources increases
  • housing and other amenities will become less affordable
  • income gap increases
  • people will have children later or opt not to have children
  • population starts aging at an accelerated rate
  • spending drops as population aging continues and population size starts contracting
  • economy slows down and starts contracting
  • competition for resources decreases
  • labor shortage becomes pronounced and wage levels starts increasing
  • housing and other amenities become more affordable
  • household confidence increases leading to more children
  • economy starts growing

East Asian countries

  • South Korea
    • is in the mid phase where households are feeling the pinch of scarce resources
    • birth rate per woman is starting to fall
    • 2019 fertility rate is at 1.323 per woman
  • Japan
    • in the latter phase where population decline
    • labor shortage are becoming pronounced
    • New college graduates are in high demand and can easily find jobs
    • 2019 fertility rate is at 1.478
    • immigration laws are loosen

On Singapore

  • Money laundry capital of the world
  • Stable government and economy
  • the SGD1000 note receive a premium rate brought to South Korean exchange offices
  • fertility rate is one the lowest in the world at 1.26 per women, the government has long adopted a very loose immigration policy to offset the deflationary effects of an aging population
  • Net effects on the economy
    • continued influx of high income earners and high net worth individuals
    • continued lowering of birth rates
    • average income per capita will continue to increase as low income households continue to die off due to low birth rates

On Korean politics

The legal framework is split into the police and the prosecutors. With the police handling the day to day executive work and the prosecutors given the right to investigate into any issues of concern.

The prosecutors has grown big in numbers over the past few years and the government is trying to curb its influence so as to maintain balance within the system.

The police was involved in a drug scandal in Gangnum where three popular night clubs were closed down. The prosecutors are using this as leverage to remove the brake on their continued growth in influence. Meanwhile Octagon which had been steadily losing popularity due to the existence of the three clubs is now surging in popularity again. This is mainly due to the lack of alternative options in the Gangnum area.

Related references

Book summary: Buffett the making of an American capitalist by Roger Lowenstein

Keep things simple. Simple should not be confused with easy.

Business model assessment

  • Easy to understand economics
  • Strong defensible moat
  • Trustworthy management who treat capital of shareholders with ownerlike care
  • Selling at a reasonable price
  • Able to generate high returns without excessive usage of debts

Guiding principles

  • Stick to companies with your circle of competence
  • Ignore macro economics trends and analyst forecast
  • Choosing between growth and value is a misguided one. See the business model holistically.
  • A share in a business is basically a bond whose coupon rate you need to figure in yourself
  • The character flaws of an individual tend to have very serious spill over effects. Always check for serious character flaws of individuals whose company you plan to invest in.

Float

  • Buy cash generating assets to finance purchase of more assets
  • Insurance is a prepaid model
  • Blue Chip is a prepaid stamp sales model

Management of cashflow

  • Give out dividend
  • Share buy back
  • Reinvest or MnA

The last option is almost always value destroying unless the management can generate ROI above it’s current RoA rate. This is predicated upon a strong defensible moat.

Leadership

  • Confidence
  • Perspective
  • Ability to focus
  • Communication

Book summary: to be a machine by Mark O’Connell

At some point given enough technological advances we might no longer be restricted to our human form. It make sense to seriously consider what it fundamentally means to be human.

The three phases of the transhumanism

  • Biological body, biological brain
  • Biological body, augmented brain
  • Augmented body, augmented brain

Related readings

  • Mind Child: the future of robot and human intelligence, Hans Moravec

Federal reserve maintains interest rates 11th Dec 2019

Key indicators

  • Business investments slowed
  • Manufacturing has slowed
  • Exports has slowed
  • Unemployment rate remains at historical low

Employment rate

  • Wage increases of 3.7% observed at non supervisory production sectors.
  • Flexible deployment of jobs to low cost areas remains a strong downwards pressure.
  • Correlation between inflation and unemployment is at 0.1

Repo market concerns

  • Repo markets issue being looked into. Reviewing regulations that are hindering repo market operations by major banks
  • Will meanwhile continue purchase of treasury bills to provide necessary liquidity

Key long term deflationary pressure on the world economy

  • Automation
  • Globalization versus trade inhibiting government policies
  • Aging population

Reflections for the day

When travelling alone the primary focus of your attention is on the immediate surrounding you have put yourself in. When traveling in a pack the primary focus of your attention shifts to those within your pack. When wanting to immerse do the former when intending to become more intimate with someone do the latter.

When undertaking military affairs or activities performed under adverse environments, character weakness become apparent fast. Judgement must necessarily be passed  on allowed continued membership in the pack. Such judgements compared to those made under less adverse environments are permanent.