Sunday Finds + 3 Things I Thought About Last Week
C3.AI and Mitek Systems
3 Things I Thought About Last Week:
Certainty = death. The speech I recommended this week is one of the best things I’ve listened to all year. Having only listened to it once, I can’t say I’ve grasped any of the deeper meaning Wallace is trying to articulate, but the basic stuff is easy enough to understand. One part that hit home from an investing perspective revolves around one idea: certainty. “The point here is that I think this is one part of what teaching me how to think is really supposed to mean. To be just a little less arrogant. To have just a little critical awareness about myself and my certainties. Because a huge percentage of the stuff that I tend to be automatically certain of is, it turns out, totally wrong and deluded. I have learned this the hard way, as I predict you graduates will, too.” This reminds me of the Mark Twain quote that got famous (ish) in the investing world after appearing in the opening scene of the Big Short: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” I think Wallace and Twain are essentially saying the same thing here, which is that your brain is wired to think in certainties, so you should try to bias yourself to reduce the level of confidence you have in an idea, no matter how “certain” your brain is telling you it is. For me, taking the question “How certain are you?” and replacing it with “What’s your confidence level?” can help in this regard. For our fund, we do this by force ranking all our holdings every two weeks on a scale of 1 to 25 (1 being highest confidence, 25 being lowest/I think we should sell). Not only does it help us build a journal of what we were thinking at certain times, but it forces us to articulate our confidence levels and why we believe what we do at that time. In unrelated news, ARK Invest believes its funds can return a 40% CAGR over the next five years, that “disruptive innovation” stocks are in deep value territory, and that disruptive innovation will be a $200 trillion opportunity in 10 years (current world GDP is estimated to be under $100 trillion).
The TikTok conundrum. One thing I am semi-confident in is that allowing TikTok to flourish unabated in the United States/Western world is a mistake. This idea has been inspired by the anonymous account on Twitter called The Rational Walk, which tweets about the topic semi-frequently with some good sources. Here is what was said in their latest tweet thread around a new WSJ article about how the app drives young girls into eating disorders: “Just a periodic reminder that TikTok is a social network created in a dictatorship with a known objective of weakening the west and dominating the 21st century. Do you think this type of thing is accidental? I don’t.” TikTok has ~50 million daily active users in the United States, meaning it is a huge amount of the stream of information going into our brains on a daily basis, especially among people under 30. This is like if in the 60s Russia came out with its own TV channel and the U.S. agreed to make it its fourth broadcast TV channel, beaming it into ~50 million homes every night with no restrictions. And what’s crazy is this isn’t over some necessity like energy, semiconductors, or healthcare supplies. It’s for stupid short-form videos. At best, China has no nefarious plans with TikTok, and it is just another way for everyone to amuse themselves to death. At worst, it is the perfect Trojan Horse to nudge the brains of our youngest and most vulnerable into thoughts/actions that are to the Chinese Communist Party’s benefit, and to the United States detriment.
Could Fintwit go activist? I don’t think the idea is so far-fetched if the antiquated bureaucracy of accredited investor rules went away (I’m sure there are also other roadblocks I’m not thinking of). It could work like this. First, a larger fund with more influence and a good reputation could start a special purpose vehicle with the sole intention of getting enough capital to take a meaningful stake in the activist target. Then, with an outlined plan of action, it could raise money for this SPV through Fintwit with anyone who agrees with their activist ideas, building a crowdsourced activist fund (obviously not on the blockhain, we wouldn’t want to pay those fees). Then, the SPV takes the activist stake, the organizing fund acts as the proxy for the SPV investors, and you see how things shake out over the next five years. Could this work for a large company like Twitter? Probably not. But for small-cap stock with a $250 million market cap, where a 10% stake only takes $25 million? I don’t think the idea is too crazy. And man, would it be fun to watch or be a part of.
See you next week,
Brett
***Our fund, Arch Capital, may own securities discussed in this newsletter. Check our holdings page and read our full disclosure to learn more.***
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