Month: February 2017

Select Readings (Week 7/2017)

Just another article illuminating the slow-moving train wreck that is the Retirement Crisis in the U.S.: Two-Thirds of Americans Aren’t Putting Money in Their 401(k) (Putting this at the top of the reading list to call attention to the crisis. The U.S. 401K savings scheme is a classic example of good policy intentions meet a complex system – financial and societal – that changes over time and cause unintended consequences years down the road. Many FinTech start-ups are working on the savings and retirement problems from different angles, but we need both industrial and policy solutions to succeed)

2016 Berkshire Hathaway Annual Shareholder Letter is finally here (Again Warren tore into the hedge fund industry for its collective under-performance and fee structure, and praised Jack Bogle as his business hero for bringing ultra-low-cost index fund products to the average Americans and in the process amassed only a tiny fraction of wealth vs. a typical money manager. In the end, Warren did offer an olive branch to Wall Street, Berkshire loves to pay fees as long as it is commensurate with the value it gets)

Full notes of Professor Bruce Greenwald’s Value Investing Class at Columbia Business School (Enjoyed this class while at CBS, the same class that Todd Combs took. Great intro course to the value investing framework that Professor Greenwald developed, which is a lot different from what you learn from classic textbooks or other schools)

Full notes of Professor Joel Greenblatt’s Special Situations Class at Columbia Business School (Joel Greenblatt has one of the best investing track records – 40%+ for more than a decade. This class is only available to students in the Value Investing program, but much of Greenblatt’s teachings are in his two books)

The Value and Opportunity Blog just started an interesting series on Travel stocks (OTAs)

Turning away from good old-fashioned stock picking, Numerai, a San Francisco-based start-up launched in 2016, is using open-source to run a new kind of hedge fund by combining cryptography, data science, bitcoin, and crowdsourcing. This week they just issued their own crypto-currency to further incentivize data scientists to work together, white-paper here and you could join their Slack Channel here (So far in finance, stock exchanges and payment processing are the only few areas where strong network effects exist. Can Numerai turn our traditional ‘zero-sum-game’ notion of asset management on its head and create network effects in capital allocation? My initial intuition is maybe…on a smaller scale. In essence, they are still running a hedge fund, where investment research is outsourced to freelance data scientists, whether such a model could create sustainable alpha and how much AUM could it handle need to be proven. Also, what’s to prevent other hedge funds copy the business model? I do like the spirit of open-source innovation and this is still a very early-stage experiment, so we should see it as an experiment. If anything, it is certainly on the bleeding edge of FinTech, and Union Square Ventures and Renaissance Technology have thrown their money behind it)

As for other U.S. based FinTech start-ups who have been trying to upend traditional finance? The road to disruption is a long grind and co-operation is the new path. This New York Times article provides a good story of the realities facing U.S. FinTech start-ups and their shifting strategies (Entrenched legacy infrastructure, regulatory constraints, well-engrained consumer behavior, lack of steady flow of capital, and formidable moats of incumbents make life particularly hard for FinTech start-ups in the U.S.)

On the other hand, in a parallel FinTech universe, China shows the way, an excellent article by The Economist discussing the unique circumstances that allowed FinTech innovation to flourish and have a bigger impact in China vs. U.S. and offered some good lessons learned (Not to pay too much lip service to Chinese FinTech innovation, where much of the success has been on the consumer payment front and in sales & distribution of financial products, where cooperation with financial incumbents is also important. In terms of market structure/infrastructure and asset manufacturing, China still trails far behind in maturity, and increasingly, the ‘license to innovate’ in certain areas are held by few powerful players. That said, I remain absolutely optimistic about China’s FinTech future, net-net the barriers are still lower vs. the U.S.)

Matt Turck at First Mark  Debunking the “No Human” Myth in AI

 

 

 

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Select Readings (week 6/2017)

Becoming Warren Buffet HBO Documentary (Focus, principle, persistence. Simple but not easy)

Charlie Munger  – Full Notes from Daily Journal Co. Annual Meeting and Full Video here (As always many quotables and nuggets of wisdom)

Charlie Munger said during the DJCO meeting that “India has taken the worst aspects of democracy.” Popular narrative likes saying India is the next China, here is a factual argument for Why India is not the Next China. (As an honorary brown person, I love my Indian friends will certainly re-visit the country)

John Hempton at Bronte Capital admits that He does not Understand the Indian Outsourcing Company Syntel (Saying I don’t know is a virtue, saying why I don’t know, and here is how unsure I am requires thinking)

While India was grappling with its rupee bill debacle, here is a fast and furious tour to The Lastest Tech Trends and Fads in China (Went back to China from Nov – Dec last year, met many start-up and VC friends. China is truly a parallel universe and counter-factual to the U.S.)

Y Combinator’s 2017 Annual Letter (Since 2005, has funded 1,470 companies with total valuation of $100B, less than half of Apple’s cash balance if that puts it into perspective. Letter touched upon the era of hyper-scale tech companies powered by network-effect like the FANG, where their advantages are still underappreciated by founders and investors alike, and they will get more powerful without antitrust actions, I will be a happy shareholder for now)

Speaking of FANG, rumor has it that Amazon is looking to buy Capital One, and how have they fared in financial services(I think the author’s analysis need to be more rigorous. Using Tencent and Alibaba’s success in China to speculate or extrapolate U.S. Tech firm’s ambition and achievable scale in finance to me is naive. No, it’s unlikely they will play an important role in the financial ecosystem anytime soon in the same way that Alibaba has done in China. The fundamental market structures, regulations, and consumer behaviors are miles apart.) 

Micah Rosenbloom of Founder Collective chats with Harry Stebbings of Atomico about why $100 million is a good exit and why capital efficiency is key to returns and investment success in “20 VC: Micah Rosenbloom”

Last mention of Snap before its IPO: Mark Suster on Why He did not Invest in Snap and How He Feels Now, Professor Damodaran Valuing Snap before its IPO, Evan Benedict at A16Z and Ben Thompson at Stratechery each trying to frame Snap’s strategy (Mark did it with good grace and showed how hard it is to get out of your own narrative. While not a fan of DCF, it did provide a quick-and-dirty yardstick to judge value against. No, I am not buying Snap on the IPO, though funds in my 401K may)

Growth Hacker Andrew Chen on The Bad Product Fallacy

Back to Basics: Reality, Uncertainty, and Human Stupidity

What causes human misjudgment? Why do supposedly well-informed and intelligent people get things so massively wrong and repeat the same mistakes? 2016 delivered two painful slaps in the face (Brexit and Trump) to political pundits and pop media, and the financial markets served more to those who turned pessimistic on the stock market immediately before or after. From the grandest stage of the political and financial arena to the mundane aspects of everyday life, uncertainty and mistakes are what we have to live with. After all, nobody bats a thousand. As human beings, we are prone to making mistakes in our decisions – or human stupidity as I’d like to ascribe to myself. Even the all-wise Charlie Munger says “my life is a litany of mistakes.” In the very long run, our results in life would be the result of our effort + luck minus the sum of our misjudgments, as at the poker table where “your winning will approach all your opponents’ mistakes, less the sum of your mistakes” (though life is certainly not a zero-sum game).

Continue reading “Back to Basics: Reality, Uncertainty, and Human Stupidity”

Select Readings (week 5/2017)

Baupost’s 2016 Year-End Letter(Disclaimer: linking and may be unavailable soon)

Sequoia Fund’s 2016 Year-End Letter (The famed fund fathered by Warren Buffett leaving the Valeant Saga behind, swapped Walmart with Amazon in the fall)

Bronte Capital’s 2016 Year-End Letter  – (John Hempton is long Bayer, so is David Einhorn, and thinks U.S. stock market is expensive but not so pricey to imply imminent permanent capital loss)

The must-read semi-annual Graham & Doddsville Newsletter Winter 2017 from students at Columbia Business School

A good introduction to the NYC FinTech Community, with suggested newsletters to stay abreast of the continuously evolving landscape

Cliff Asness’s thoughts on the DOL Fiduciary Rule and unintended consequences(The Trump administration now wants to roll it back, many robo-advisor and robo-401K start-ups predicated their businesses on the fiduciary model and will make a stand, hear both sides. 40 years from now, we may see the robo-movement in the same light as the one John Bogle at Vanguard started 40 years ago )

An excellent overview of the Ocean Freight Shipping Industry from a VC perspective by Brian Laung Aoaeh at KCE Ventures, with great additional reference readings – (Publicly traded shipping stocks have been crushed in the past two years, time to look for contrarian bets?)

Start-ups, Wall Street wants your data! As always, a well-articulated post on alternative data business by Matt Turck at First Mark Capital

Helpful guide to SaaS entrepreneurs thinking of raising money in today’s environment SaaS Funding Napkin, the 2017 edition by Christoph Janz at Point Nine Capital

Snapchat IPO: Too Soon? – (Future Facebook or Twitter? Let the market be the judge)

 

Continuous Learning: 28 Books I Read in 2016

Evolution, the natural movement toward better adaptation to reality, is one of the greatest forces in the universe. Evolution leads to improvement, improvement helps one get what he/she wants. Thus the desire to evolve is probably humanity’s most universal driving force, and continuous personal evolution is one of the greatest rewards by itself. In order to better adapt to reality, one has to have an accurate understanding of it. Reading and reflecting is a shortcut to gaining knowledge about how society and the universe work. Below are 28 books that I read in 2016 across a range of domains. I don’t think I am any smarter, but I am certainly more knowledgeable than a year ago, or rather more aware of my ignorance…
In 2017, I think I will slow down my pace of reading and instead devote more time to each book, and re-visit some books read in the past. After a year of voracious reading, I found my knowledge retention was not very satisfactory. Writing a book review is a good exercise but a bit too time-consuming and less economic given my slow speed of writing. A habit that I will start to form is to write down a few key unconventional ideas from each book. Peter Thiel asked an interesting and really hard question in the opening of his book “Zero to One”:

“What important truth do very few people agree with you on?”

I think that is a good filter to start with to select my key takeaways. Continue reading “Continuous Learning: 28 Books I Read in 2016”