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

General thoughts on Mark Zuckerberg’s warning of the internet’s role in Authoritarianism displacing Democracy

  • The polarization between democratic systems and authoritarian systems is becoming more apparent as China leverages its growing middle class to project it’s influence on the world stage a strategy that US has been utilizing for the past decades.
  • Facebook is a vehicle for projecting American values overseas.
  • The African continent remains a land grab for the two different regime types. Thus far, China has won out on the physical infrastructure and government level while FaceBook has won out on the community grassroots levels.
  • For the C Suite especially CMOs to execute their jobs well they need to be focused on what’s happening out there in the world as opposed to what’s happening within their own functional organization. It’s the VP of marketing’s job to handle what is within their own marketing organization.
  • Its a time when US companies will need to navigate the international markets while managing the challenges to their American values.
  • The Chinese government has done a better execution on that front with their One Belt Road initiative by clearing the path at the government level to facilitate the unhindered expansion at the commercial level by its enterprises.
  • Western media is working at full Rev to control the narrative frames that drives public opinions.
  • Mark Zuckerberg has masterfully leverage recent trends to reframe Libra as a champion of democratic ideals as opposed to a disintermediation force on central banks around the world.

Related references

Zuckerberg Warns China’s Censored Internet Could Still Win Out
https://www.bloomberg.com/news/articles/2019-10-17/zuckerberg-warns-china-s-censored-internet-could-still-win-out

Apple bows to China by removing Taiwanese emoji

https://qz.com/1723334/apple-removes-taiwan-flag-emoji-in-hong-kong-macau-in-ios-13-1-1/

Christian Dior apologizes for omitting Taiwan from Chinese map

https://www.breitbart.com/national-security/2019/10/17/china-bullies-christian-dior-apologizing-omitting-taiwan-map/

China exerts pressure on NBA to fire key executive for tweet on Hong Kong unrest

https://www.nytimes.com/2019/10/17/sports/basketball/nba-china-adam-silver.amp.html

Solomon island switches relationship to China from Taiwan

https://www.nytimes.com/2019/09/16/world/asia/solomon-islands-taiwan-china.amp.html

Kiribati switches relationship to China from Taiwan

https://amp.theguardian.com/world/2019/sep/20/taiwan-loses-second-ally-in-a-week-as-kiribati-switches-to-china

Southeast Asia balances between Chinese Markets and US defense

https://www.nytimes.com/interactive/2018/03/09/world/asia/china-us-asia-rivalry.html

Facebook Warns Washington That Beijing Wins If Libra Plan Fails
https://www.bloomberg.com/news/articles/2019-10-17/facebook-warns-washington-that-beijing-wins-if-libra-plan-fails

 

 

Constrains on world GDP levels

Absolute constrains

  • Break throughs in fundamental science
  • Level of human population
  • Size of geographical mass under occupation – currently Earth

Transient constrains

  • monetary and credit supply levels
    • inflation
    • deflation
  • proliferation of scientific techniques
    • full proliferation results in zero or negative ROI when further credit is employed
  • ease of population, trade and credit/money flows around the world

Related references

An unchanging constant as the source of trust

Trust is the ultimate source of wealth in any society. The level of manifested physical wealth correlates positively with the level of perceived trust members of society have for an entity.

When an entity, be it a phenomena or a behavior, is observed to be consistent across time without much falter, it soon becomes accepted as the norm. Overtime this norm gets deeply embedded within a society and becomes an integral part of its culture. It thus becomes trusted and a source of credibility.

Societal commerce is built on trust. Trust accumulated through consistency overtime can be converted to other forms of tangible currency. These currencies can then be used to direct resources within the society towards the achievement of very material goals.

When comparing between two entities that are embedded within the cultural fabric of society, the one that exhibits a higher level of consistency inevitably gains more trust. This explains why while fiat currencies comes and goes, the value of gold remains consistent across time.

While it might be tempting to equate trust with value, there is a subtle difference. While trust elicits value, value need not necessarily elicit trust.

Expressing the entire civilization’s undertaking at any point in time as an linear equation, any essential variable that happens to be the most restrictive in supply at that point inevitably becomes the most valued. However wide fluctuations in value does not elicit trust in the long run.

Sources of trust

  • the rotation of seasons and our subsequent practice of agriculture
  • the constant speed of light and it’s use in Einstein’s theory of relativity
  • gold with its scarcity and it’s persist use as a store of wealth
  • well run institutions with well defined constitutions
  • fiat currencies with under sound government regimes
  • individuals who exhibit consistent behavior overtime

Qualities of viable currencies

  • Ability to be divisible
  • Ability to be moved
  • Ability as a store of wealth overtime
    • consistent levels of supply
    • scarcity

Functions of currencies

  • a means to facilitate transactions
  • a store of wealth

Examples of trust erosion

Example 1: Michigan Pulls $600 Million From Ken Fisher an individual After Lewd Remarks

https://www.bloomberg.com/news/articles/2019-10-12/michigan-pulls-600-million-from-ken-fisher-after-lewd-remarks

Example 2: 1918 Germany as an institution, towards the tail end of WWI.

When it became evident that the country will loss the war, it experienced increased inability to raise debt to in domestic currency denomination to continue financing its war efforts. It’s currency soon lost it’s reserve currency status and it was increasingly forced to denominate debt in foreign reserve currencies.

Post WWI debts denominated in domestic currency where inflated away through printing of cash by the  German government to pay of debts denominated in foreign currencies.

Example 3: Africa use of glass beads as a failed form of currency

Europe was able to cheaply produce this in abundance . Europeans for a period were able to exploit this asymmetry by exchanging cheap glass beads for valuable natural resources. When value within the African society became depleted,  Europeans were eventually able to subjugate the entire African population and exploit them through the slave trade.

Example 4: Wall Street crash and the Great Depression of the 1930s.

Bankers increasingly became concern of easy credit driving share prices to stratospheric valuations. An eventual tightening of credit lead to rapid deleveraging within the system. The lack of trust within the system prevented the circulation of money and credit. The central bank ultimately had to step in to restore trust.

It did so by first preventing the flight to value. This was achieved through the banning of conversion of USD dollar to gold.

Example 5: An ongoing slow erosion of fiat money

With the deliberate pursuit of constant 2% yearly inflation by central banks around the world current fiat money are failed stores of wealth .

The currency of the Roman Empire is a perfect example of where we will be headed. Overtime less gold per coin is used. Their currency was ultimately replaced by paper which allowed rampant printing by the government during times of war. The effects of inflation eroded the Roman empires currency as a long term store of wealth.

Examples of persistent sources of trust

  • The institution of the Catholic Church
  • The consistent adherence to a set of sound principles by Berkshire Hathaway’s reinsurance business over multiple decades. 
  • Federal reserves consistent adherence to the dual mandate of 2% inflation and low unemployment rates

Conclusion

To build trust is to build wealth. The key to doing so is to adhere and operate on a consistent set of sound principles over across time and in all environments. Being slow and steady is a pre-requisite of this process.

Related readings

Observations on how public opinion is shaped in the US

Public opinion is observed to be very malleable and fickle. It’s highly susceptible to reshaping by main stream media.

In an unlikely twist of events, what was once presented as a war by the White House against China over trade and national security has overnight morphed to become a fight for American values like democracy, free speech and human rights.

While the ongoing unrest in Hong Kong have provided ample fuel, the tweet by NBA Houston Rockets general manager was the spark that caused the fire.

Related Readings

Chat with Punit

Private one on one chats over dinner and generally more insightful than listening to talks in conferences.

Areas of focus

Core areas of focus

  • enterprise
  • cloud
  • security
  • SaaS

Exploratory areas for growth

  • healthcare technology
  • fintech
  • gaming

Process

Starts building a model about a space before diving in. After diving in with investments further build out the model. Coefficients for the model include areas:

  • Team processes
  • Product performance metric
  • Market growth

Thoughts on FinTech

Betting on consumerization of the space as opposed to enterprise. Recent move by Charles Schwarb will not likely impact revenue of consumer apps.

Looking for startups focused on the vector that will get them into consumer wallets as well as grow to occupy a much larger portion of the consumer wallet.

When baby happens, need to get baby insurance. Then next would be Will. And then next…

Hedge funds are not suitable for VC investments. Hedge fund managers should look for other types of investors.

On security

CEOs has not much time. Prefer to high a company that is specialized in acquiring security solutions and delegate the problem to them instead. If shit hits the fan, gets to delegate blame. Companies do not remove security solutions but keep on adding on new ones. Its like a bandaid approach. Removing solutions runs the risk of causing bleeding, very dangerous. The recurring revenue is very lucrative.

When it comes to security is not a question of ability to deeply penetrate a system. Its a question of willingness to pay to penetrate the said system.

On machine learning

On public web data, building model based that is based around proven correlations – CxOs tend to leave a company before shit happens.

On offline data, putting in boxes in data centers to track traffic volume in and out of data centers to approximate demands on another company’s servers

Words on the street

VCs are increasingly concerned about governance. WeWork’s founder have basically offload USD500million dollars on the secondary market to other hedge fund managers.

On funding

If the core economic of the business does not work before funding, it will only get worst after funding. This is because the company will need to clear an even higher valuation before new investors will be profitable.

On board operations

Having a lot of big brand name VCs does not necessarily mean that you will have a good board. The board needs to be well round.  The founder needs to be able to align all the members of the board.

Expectation of the fund

Calibrate the needs of the needs of the corporate and the needs of the founders.

Expect governance to be intact. For the founders to truly execute upon what they sold when they raised the money.

Would be happy to even just double their money.

 

Evening out watching Rambo, last blood

From Sujit on trading

  • not necessary to get numbers further back than six months
  • stock market subjected to fractal distribution
  • it is possible to generate returns of up to 140% per year by trading on stocks that are moving within a range
  • going all in on each position each time leads to a very low Sharpe ratio
  • Sharpe ratio should be calculated separately for method and for SnP benchmarked against US treasury interest rates. The difference is the actual returns

On Rambo Last blood

A movie is a reflection of the culture and attitude of an age. Rambo was a very popular cultural icon during the eighties and the early nineties when memories of the Second World War and the Cold War against the communist were still very fresh in the minds of the people in America.

If you looked at the world today through the eyes of someone like Rambo, you would have been able to easily draw facts to back the narrative painted by Trump prior to being elected president.

When operating in an environment of uncertainty, a decision maker formulates multiple often competing narratives in the head that best explains majority of the facts presented. He calibrates the weightage assigned to the probability of each narrative as new pieces of data become available. He simultaneously utilizes multiple ones that are assigned high plausibility in his decision making to strive for the best possible expected outcome . It is a cognitively demanding iterative activity that goes on indefinitely.

  • common themes between movie and Trump’s narrative
    • Mexico drug cartels
    • Mexico prostitution rings
    • The world is a dark place
    • illegal border crossing
    • poor border fence
    • white male
    • Rust belt
    • Protagonist is in his 70s
    • Freedom fighter who fought the communist in Vietnam and Russia
    • guns and lots of blood
    • man of steel
    • manifest destiny
  • Cognitive biases
    • Narrative fallacy
    • Framing bias
    • selective bias

Related readings

  • Expert political judgement, Philip Tetlock

Patagonia’s brilliantly executed brand positioning

This company has moved beyond selling physical products and lifestyles into the business of selling an identity.

The persona

I am youthful and vibrant, I am passionate about the great outdoors and I will fight to preserve the environment which I so much love.

My thoughts

Nowhere within this 100 page magazine was there ever a mention that Patagonia sells outdoor gears but if you identify with the persona just described above then Patagonia is your go to brand.

The company has positioned its brand at the self actualization level of the Maslow’s hierarchy of needs.