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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