The Best Media Content I Consumed This Month (April 2023 Edition)
Here's a glimpse into the best articles, podcasts, videos, and books I consumed in April 2023.
Articles
1) 2022 Social Capital Annual Letter
This was a fantastic annual letter that provided an excellent summary of both 2022 and the current macroeconomic/geopolitical landscape. Chamath Palihapitiya is the Founding Partner of Social Capital, a US VC firm with $6.6b AUM that specialises in “deep tech”. Across all their funds from 2011-2022, Social Capital has returned an impressive net IRR of 21.3%.
In this letter, Chamath discusses major changes that have occurred over the past 12-24 months, including:
The shift from zero interest rate policy (ZIRP) to a granular focus on the cash burn and margin profile of companies (both public and private); and
Europe’s dependence on Russian natural gas and decreasing use of nuclear energy due to political backlash.
Interestingly, Chamath believes investment returns and the next wave of innovation in the 2020s will be driven by two core themes:
The marginal cost of energy going to 0.
The marginal cost of computing power going to 0.
Chamath has a strong track-record of spotting trends well before they enter the mainstream. He was deep into bitcoin and SaaS in the early-to-mid 2010s, Amazon in the mid-2010s, SPACs in 2020 (before the subsequent bust), and now life science and renewal energy businesses in the 2020s.
The article finishes with some fascinating examples of Social Capital portfolio companies, including 1) unmanned solar- and wind-powered surface vehicles that collect data on oceans and 2) a biotech business that has developed a unique test to improve the early detection of bladder cancer.
2) A Letter to Starters at TDM Growth Partners
Another cracker of an article from TDM Growth Partners, one of the best performing global investment firms of our generation. Some key learnings from this article:
TDM was founded with $1m of assets, which has now grown to $2b.
Since inception in 2004, TDM has compounded at 26% pa, leading to a 61x (!) return for original investors.
TDM owns a portfolio of 10-15 companies at any one time, which is very concentrated. This includes a mix of both public and private businesses, but from what I’ve heard, private positions account for >50% of their total assets.
TDM does not charge an annual management fee, which is SUPER RARE in the investment industry. They only charge a performance fee, which is 15% of all the profits above a high water mark. Very cool.
People on the TDM investment team can only own TDM portfolio companies in their personal accounts. How’s that for skin in the game!
Performance has continued to be very strong in recent years. The fund is up 117% since March 2020 and 15% so far in FY23 with a few months to go.
Their largest positions (70% of the portfolio) trade for: <5x forward revenue, <25x forward EBITDA, with forecasted revenue growth of >45%. On an aggregated basis, the portfolio valuation looks quite reasonable.
The fund only has a 5% cash weighting right now, so the team is clearly seeing some good opportunities to put some cash to work.
As I get more experienced, I’m becoming more and more convinced that the most reliable way to outperform the index is to own a concentrated portfolio of 5-15 businesses, watch them like a hawk, and let time arbitrage work its magic (like TDM has done!).
3) How the Great Australian Dream Transformed the Economy Into a House of Cards
A great article that provides a solid overview of the debacle that is the AUS housing market. My main takeaways:
Australia has the 5th highest household debt to income ratio of all the OECD nations.
Outright home ownership rates (i.e., no mortgage) have decreased from 70% in 1966 to <33% in 2023.
The proportion of home buyers who got financial help from “the bank of mum and dad” has increased from 15% in 1980 to >40% in 2023.
The AUS housing market has become a systemic reinforcer of wealth inequality, i.e., those with rich parents get help to purchase a home, while people without rich parents and lower income earners are often priced out of the market.
People are often forced to live far from their working area (often CBD or central areas) due to low housing affordability, which has major impacts on mental health (and traffic congestion!).
Short-term first-home buyer government initiatives almost always have the opposite effect. They artificially increase demand for property which drives up prices and reduces housing affordability. In the end, the first-home buyer suffers because prices go up and they pay substantially more interest over the course of the mortgage (assuming they were able to purchase a home with a smaller deposit because of government intervention). The banks make more money and everyone is happy. Welcome to Australia, mate!
I’m pretty passionate about this topic (if not already clear from the above haha). Keen to hear what other people think but it feels like we’ve been worshipping home ownership WAY too much in this country. Some potential solutions?
Provide less short-term artificial incentives for first-home buyers to ensure demand is not artificially propped up at the lower end of the market.
More sensible monetary policy from the RBA to not distort pricing signals. In other words, keep rates at a sensible level to drive dumb speculation out of the market.
Stricter assessments of mortgage affordability from the banks (i.e., ensure the borrower can also service the mortgage at much higher interest rates to provide a buffer, reduce the risk of systemic foreclosures, and the need for bank bailouts).
Provide more incentives for builders to increase housing supply and address the massive supply-demand problem.
Continue to invest in areas outside of the CBD (e.g., Parramatta, Chatswood) to more evenly disperse job opportunities and the population throughout Sydney.
Thoughts?
Podcasts
1) The Billionaire Formula to Getting Rich in 2023 (Iced Coffee Hour)
I didn’t expect to like this episode at all (especially with the ridiculous clickbait title), but this was genuinely one of my all-time favourite podcasts/interviews. Sahil Bloom is a weapon (former PE VP, runs a VC fund, renowned content creator) and this interview delved in detail into his former career in Private Equity (PE) and how he made the decision to step away when he was earning $1m/year at the age of 27. Some highlights:
Sahil had job offers at both McKinsey and a small PE fund in San Francisco after he graduated from Stanford. He chose the PE fund and helped grow the firm from $500m AUM to $3.5b AUM over the course of 7 years. He was co-leading their consumer investments when he left.
He had a pretty quick path to become a VP at the PE fund: 2 years as an analyst, 2 years as an associate, and 1 year as a senior associate. Tough to accomplish at a larger firm with more red tape and bureaucracy.
Sahil was making $1m/year in total comp when he was a VP, across both “base” salary and his “carry” of firm investment profits. Pretty incredible for someone in their late 20s.
The ability to be “normal” in meetings and speak at the client’s level was super important for his career development. He had a background in collegiate baseball at Stanford so was able to talk sports with clients (particularly those in more central America), which held him in good stead. He mentioned that coming across as “being superior” to clients is one of the easiest ways to derail your career development.
He grew his Twitter following from 500 in May 2021 to 75,000 by the end of December 2021. This occurred mainly via Twitter threads which had insane engagement at the time (less so now I imagine as they have become more saturated and generic).
Sahil still wakes up at 4:30am each morning and does a cold plunge first thing after waking. He structures the rest of his day around 2x 2.5 hour “deep work” blocks of writing (one from 7-9:30am and one in the late afternoon).
Going for silent walks is one of the best ways to improve creativity and gain life creativity. He walks for up to 3 hours each day with his young son.
Our threshold for compatibility with a romantic partner is probably lower than we think. Waiting for the “perfect person” to arrive is a recipe for long-term unhappiness and puts all the onus on the other person and less on how we contribute to a healthy relationship. I definitely agree with this perspective.
2) Martin Shkreli Reveals How He Made His First $100 Million (My First Million)
This was a fascinating interview with a VERY controversial figure. Martin Shkreli is known by many as the “pharma bro” after he raised the price of a life-saving AIDS drug (Daraprim) from $13.50/tablet to $750/tablet after his pharmaceutical start-up, Turing Pharmaceuticals, acquired the drug. He’s spent his career working in hedge funds and as a senior pharmaceutical executive.
This interview provided insight into a different side of Martin. He’s incredibly intelligent (IQ-wise), very logical and reasoned, a hardcore free market libertarian, and can also be amusingly self-deprecating at times. He also laid out a surprisingly compelling case for the Daraprim price hike to 1) be able to invest in R&D to develop a better drug for the same condition with less side-effects, and 2) because the out-of-pocket cost did not change that much for the end consumer as the drug was covered by most insurance companies.
Would highly recommend this interview for those interested in the business of hedge funds, pharmaceutical companies, economics, and dealing with major career setbacks (and jail time).
Shout out to Alex Barrat for the recommendation!
Books
1) Antifragile: Things that Gain from Disorder (Nassim Taleb)
This was a VERY dense book (with rather verbose language throughout) but undeniably one of the most impactful and thought-provoking books I’ve ever read. Well worth the slog.
The book has a few core themes/lessons which have greatly impacted the way I think about life, government, economies, health, and my personal finances. These include:
Things in life can be 1 of 3 things: 1) fragile (break when exposed to stress), 2) robust (stay the same when exposed to stress), or 3) antifragile (get stronger when exposed to stress).
It is almost impossible to predict outcomes in complex systems. Instead, we gain control when we embrace that randomness and disorder are unavoidable realities of life.
As it is almost impossible to evaluate the probabilities of future events in complex systems, all we should focus on is making ourselves (and our systems) as antifragile as possible.
Depriving a system of stressors (i.e., small shocks) makes it weaker. This has clear applications to economies (letting small business failures happen), health (vaccinations making us more resistance to certain diseases), bushland (controlled burns), and raising children (letting them fall and hurt themselves in small doses to help them learn to be safe).
Adding redundancy to systems is how we make them more antifragile and reduce risk exposure. This could include having a cash buffer (individuals, companies, and governments), running fiscal surpluses (governments), and having extra parts in storage for supply shocks (businesses and governments).
Attempting to avoid little mistakes makes the eventual big mistakes much more severe. We see this a lot with fiscal policy.
People have a tendency for action over inaction, but sometimes the best solution is to do nothing and let the system heal itself (e.g., human body, economy, etc). Wish governments knew this!
YouTube
1) Psychiatrist Breaks Down Succession’s Family Dynamics (GQ)
I didn’t expect to like this video, but it was a surprisingly insightful analysis of the psychological profile of each of the characters in Succession. Well worth a watch for Succession fans!
TV Shows
1) Succession (Binge)
The best TV show I’ve ever watched. Enough said.
2) How to Get Rich (Netflix)
Awful title but a super interesting recent release on Netflix with one of my all-time favourite finance personalities, Ramit Sethi, who acts as a quasi-psychologist and quasi-financial advisor.
In this show, he chats with US couples across a range of financial situations (e.g., from negative net worth with massive credit card debt to incredibly wealthy with $300k/year in annual child support payments) and teaches them to better manage their finances.
His core principle is around living one’s “rich life” - spend extravagantly on the things you love as long as you cut costs mercilessly on the things you don’t.
I’ll admit the show sounds boring at face value but it’s an incredible watch (plus Ramit is hilarious).
Companies I’m Researching
1) Duolingo (NASDAQ:DUOL)
Shares are up more than 100% since I recommended them in late 2022. The valuation seems quite stretched at the moment, but the company is guiding to massively increase adjusted EBITDA margins in 2023 while still growing revenues at >30%. Management also has a tendency to underpromise and overdeliver on guidance, which makes me confident there is upside to their forecasts. Should I sell and take profits? These are the decisions that keep me up at night …