Sunday Finds + 3 Thoughts From Last Week
Zoom Video + Texas Instruments
Welcome to Chit Chat Money’s Sunday Finds + 3 Thoughts From Last Week. In this newsletter you will find three topics I thought about last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.
1. What is a quality company?
I sent out this tweet recently:
The responses were what you’d expect:
“A company with a wide and durable economic moat.”
“One that can sustain profitable growth for long periods of time through reinvestment. High, Sustainable ROIC.”
“Low leverage, reliable revenue, high ROIC, high margin, profitable growth opportunities”
You get the picture. We’ve all heard the same answers time and time again. Personally, I think these answers are wrong, but only because they are answering the wrong question. The responses seem to be answering the question “what are some signs of a quality company?” but not “what is a quality company?” The distinction is small but worthwhile to contemplate.
You can name plenty of low-quality companies over the last century that showed signs of an economic moat, high ROIC, and profitable growth (cough, cough, GE). But over the long-term, it all ends up being a mirage.
While it is important to look for durable moats, high ROICs, and long runways for reinvestment, I don’t believe these metrics define a quality company. You kind of just…know it when you see it? A passage from Zen and the Art of Motorcycle Maintenance helped clear this up for me:
You are never dedicated to something you have complete confidence in. No one is fanatically shouting that the sun is going to rise tomorrow. They know it's going to rise tomorrow. When people are fanatically dedicated to political or religious faiths or any other kinds of dogmas or goals, it's because these dogmas or goals are in doubt.
Take this quote and apply it to investing and I think you come close to describing the feeling of finding/owning a high-quality business. Here are some companies that come to the top of my mind when applying this “no need for fanaticism” methodology:
Visa and Mastercard
Rating agencies
Stock exchanges
Hershey
Coca-Cola
Home Depot
Airbnb
Costco
LVMH
Nicotine/tobacco
Nintendo
And there are plenty more out there, and I’m sure some of you will disagree with my choices on this list. But if I’m going to take the passage to heart, I’m not going to sit here and defend my reasoning.
2. Expanding trading hours
Last week Robinhood made this announcement:
Robinhood said Tuesday it is adding four extra hours to the trading day. In a push to eventually provide 24/7 equities trading, Robinhood said it will be available from 7 a.m. to 8 p.m. ET.
This sounds…hellish. I get that 24/7 trading is good for Robinhood’s business model (more volume = more dollars), but as an investor, the move feels very counterproductive. The only reason we had a six-hour trading day in the first place is that 100 years ago the exchange was analog and needed a good amount of time to process trades, calls from across the country, all that good stuff.
With all stock trading now processed by computers, a six-hour trading day seems like a waste of time. 24/7 trading sounds incredibly stressful. In fact, I think if the brokerages/exchanges had their customers' best interests at heart, they would only open the market for one hour a day, say, from 11 am to noon EST.
Think about the potential productivity gains. With perhaps 25 million people in the U.S. distracted during the 6.5 hours the market is open each day, a 5.5-hour reduction in trading hours each day applied to an average of 253 trading days a year could add 35 billion more productive and less stressful hours each year. And this is just in the United States.
I know I’d be a lot more productive if the market was only open one hour a day. So why can’t we make it happen? Maybe the incentives are just too misaligned.
3. Endless meetings
In a great tweet thread from Derek Thompson last week, there was this absolutely terrifying fact:
This year, meetings-per-person hit an all-time high—250% higher than Feb 2020.
Think about how insane this is? I can’t imagine getting up every day and just sitting on Zoom or in conference rooms to hear managers talk. Sounds like we have a terrible epidemic of wasting time in meetings.
But what is causing this? It may be impossible to say for sure, but I think part of it is that people want to feel productive even if they have nothing to do. The culture around an 8-hour workday could also be impacting it. But whatever the cause, I think we can all agree that it is something that needs fixing.
I’ve heard anecdotes of horror stories at investment firms that have multi-hour meetings each day with analysts. What the hell are people talking about in these things? We do a portfolio meeting once every two weeks, and sometimes I feel like that cadence is too frequent.
Before starting into investing, I worked at a highly productive engineering research lab. We would have one breakfast meeting a week that would last maybe an hour, and then everyone would get back to doing their own thing. And while sometimes things felt a bit chaotic because you wouldn’t get updates on what everyone was doing every day, I know for a fact it was a much better system than sitting in meetings all day.
Man, am I glad I don’t work at a big beuracracy.
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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Catch up on Our Shows From Last Week
3 Good Reads
Three Steps to Freedom - Tom Morgan
We go from having our own ideas, to those ideas themselves taking control of us. By increasingly outsourcing our sense of morality to our phones, we allow social media to direct our sense of outrage.
Deep Dive: Roblox - DMT Capital and Value Punks
You can think of Roblox as having two simultaneous platforms – in the form of a demand aggregator for players as we discussed in the earlier section, and also a developer platform
The Infinite Exploitation of Cryptocurrency - Ed Zitron
Cryptocurrency has grown from a nerdy libertarian doodad into a large collection of ticking timebombs where users surrender control of their finances to imperfect code, sold to consumers as a fast way to make money at a time when it’s difficult to do so otherwise. People want a way to thrive when most people can’t buy a house or save for retirement thanks to the incredible costs associated with existing.
1 Good Listen
Why US Population Growth Crashed to a Record Low - Plain English
America has never grown at a slower pace than right now. Not only have deaths soared in the pandemic, but immigration is falling and our birth rate is near a record low, as well. Why is this happening? And why is population growth so great, anyway?
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