Sunday Finds + 3 Thoughts From Last Week
Disney + Advanced Micro Devices
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. How long is long enough to “establish” a track record?
This is a topic that gets brought up from time to time in any investing circle. As someone who is trying to do this exact thing with our fund, I think about this a lot.
To frame it differently, what I think people are trying to get at when talking about track records is whether someone has done well in investing because of luck or skill and whether any of us can tell the difference.
Do 10 years of audited returns count as a threshold for when you can say someone has investing skills? Maybe, but what if those 10 years were from 2011 - 2021 and you were just riding the growth factor to outperformance? I’m not so sure we can say that is not luck, but I guess there are nuances for each situation.
When looking at someone’s performance, I think there should be both a time threshold (say, 15 years) and a business cycle threshold (you need to have gone through an entire recession and come out the other side).
If someone’s performance as an investor holds up to whatever benchmark they have within these two parameters, you probably can say they have some skill. In a perfect world, you’d want an investor to experience multiple market cycles, but we don’t live long enough for that to be a reality.
Only a few investors like Buffett truly have a track record where we can say with 100% confidence their performance was because of skill. When trying to identify investing prowess for someone who is not a senior citizen, some of it is always going to be up to chance and that gut feeling you have about a person/strategy. It’s just the world we live in.
Honestly, I’m mainly thinking through this as an introspective exercise. As someone who has been investing for less than 10 years, I want to eventually know whether I have any skills or if I am just flying blind like a dart-throwing monkey. It is scary to think about but is something everyone with professional investing aspirations should consider.
2. What’s up with WhatsApp Payments?
I wanted to get more detailed thoughts out on the topic of WhatsApp monetization (specifically with payments) after this tweet got a lot of interesting replies:
Here’s what I mean by “major investment” from Meta/Facebook:
Spend as much money as needed to enable WhatsApp users to remit money internationally in every meaningful corridor (corridor = country to country international transfer). The key area here is North America to Latin America, but others can be meaningful too.
Get WhatsApp Pay (or whatever they are calling it) available domestically in every market possible for peer-to-peer payments.
Spend billions of dollars marketing the product. I know of some solid social networks that could help out spreading the word!
With 2 billion+ users and amazing usage rates in Latin America, certain parts of Asia, and other markets, these investments could be incredibly valuable and would lock in users over the long haul.
Yes, it would take a ton of upfront investment, but Meta is one of the few companies with the size to make it happen at an attractive rate. It is likely better than spending $10 billion a year on whatever the metaverse is.
Think of how valuable a global payments network like this could be. You could run peer-to-peer, business, and remittance payments all through WhatsApp. Eventually, it could start offering banking services as well.
I know payments can be complicated and there are a lot of hurdles here, but I really think Meta is dropping the ball by not investing in WhatsApp payments. They have to monetize this acquisition somehow.
3. The upside and downside of physical network effects
Network effects are talked about ad-nauseam. Most people refer to the digital side of things (like with social networks) when discussing network effects and potential moats.
But what about physical network effects? What I mean by this is having physical nodes, stores, or whatever type of customer touchpoints so dense across a region that there is no way another company can compete at the same price level (or with the same customer value proposition).
Amazon is a clear example here with the logistical/delivery infrastructure they’ve built up. Uhaul, Costco, and Wal-Mart could also be described as having a physical network effect.
On top of economies of scale, I think a physical network effect can give a company an even stronger competitive advantage (i.e. it widens the moat).
But on the downside, companies with physical network effects are typically capital intensive. Some may disagree, but I almost always consider this a negative when evaluating a potential investment.
Why? Two reasons. The obvious one is that a lot of cash generation has to be reinvested for maintenance expenditures. And second, it adds fragility to financial performance if demand dries up or some part of the value chain goes south (cough, cough, Carvana).
It doesn’t matter how large your moat is if you can’t consistently generate free cash flow for shareholders.
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
Jose Najarro On What Interests Him About Advanced Micro Devices (Ticker: AMD)
Investing Power Hour #20: Adam Neumann Is Back, Potential of WhatsApp, Embracer Group Acquisitions
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3 Good Reads
Are You Trying Too Hard? - Adam Singer
Overthinking is an instant destroyer of highly skilled, developed tasks of any sort – whether the mental or physical variety. The Scientific American article I linked above focuses mostly on overthinking causing you to choke under high-pressure, live situations like golfing or public speaking, but this is an affliction that can also hurt your team during work that isn’t live. And let us be very, very clear, only outlier talent who is irrational committed and as some term “maniacs” at work are going to do better when lighting fires that force immediate action. It works for a very small percent of folk (and if you want to keep them, you won’t abuse this save for extreme crunch-time efforts, because even those with the most herculean work ethic have breaking points).
Social Media Was a CEO’s Bullhorn, and How He Lured Women - The New York Times (no paywall)
There were warning signs about Mr. Price, but Ms. Margis did not see them. When she did a Google search, many of the top results for “Dan Price” were his own social media accounts, along with flattering stories. Buried was the reason he had, for a time several years ago, nearly vanished from public attention: An article I wrote in 2015 for Bloomberg Businessweek revealed that his story about the pay raise had notable holes, and that his former wife had accused him of domestic violence.
Overnight, the attention largely dried up.
But Mr. Price found an antidote to obscurity: Social media. Tweet by tweet, his online persona grew back. The bad news faded into the background. It was the opposite of being canceled. Just as social media can ruin someone, so too can it — through time, persistence and audacity — bury a troubled past.
For Happiness, Moral Character is More Important Than Intelligence or Money - Rob Henderson’s Newsletter
The morality-happiness link was also found in a 2022 study.
Across three studies, people who were rated as more moral by their family members, friends, coworkers, and acquaintances generally experienced higher levels of subjective well-being and meaning in life.
Participants whose social circle viewed them as honest, kind, trustworthy, and considerate tended to rate themselves as joyful, positive, and content.
In contrast to moral character, intelligence has little to no relationship with happiness.
1 Good Listen
Pokemon | Ep. 1: Get Outside
There are big hits, and there are really big hits— and then there’s Pokémon, a kids’ game from Japan that evolved into the biggest multimedia entertainment franchise of all time. In this episode we’re time-traveling from ‘90s Tokyo— where a bug collector turned game designer first dreamed of catching pocket-sized monsters— to 2016, when an addictive mobile game helped Pokemon re-conquer the world.
Smart and Funny Tweets:
