2021 Week 24 Readings

These are the things we are reading and thinking about. Most translate into nothing useful except providing some blips in the brain.

We hope you enjoy these curated reading.


Book discussion for the Week:

Investing for Growth is a compilation of Terry Smith’s writing from 2010 - 2020. For investors who had been following him, this book helps to consolidate his writing/investment philosophy at Fundsmith.

1. Buy Good Companies, 2. Don’t Overpay 3. Do Nothing.

Alternatively, you can watch some youtube video from Fundsmith.

Fundsmith has been doing very well since their inception through picking the right companies and keeping their expenses really low.

Buying recognised companies with sustainable business economics at reasonable valuation and then holding it for years seems like an easy investment technique to copy. The usual question is what is a reasonable valuation…

Fundsmith invests in

  • high quality businesses that can sustain a high return on operating capital employed;

  • businesses whose advantages are difficult to replicate;

  • businesses which do not require significant leverage to generate returns;

  • businesses with a high degree of certainty of growth from reinvestment of their cash flows at high rates of return;

  • businesses that are resilient to change, particularly technological innovation;

  • businesses whose valuation is considered by the Company to be attractive.

Ensemble Capital is another fund manager who operate similarly to Fundsmith. You can read about their philosophy and ideas at Value-Investor-Insight-Ensemble-Capital.pdf (intrinsicinvesting.com)

Our general feeling is that there is room to accommodate another strategy which is to buy the best at reasonable valuation.

China Education Policy:

We had been keeping a close tab on the China education policy as we are vested in that sector. With China’s education ministry setting up new unit in tutoring crackdown, the tuition centres would operate with a limit on the fees it can collect and shorter operating hours. For China, companies who works with the ministry to provide software to the school seems like the better bet for now.

Being Mindful:

Cognitive biases and mindfulness | Humanities and Social Sciences Communications (nature.com) highlight to us how just being mindful will make us be more rational. The definition for mindfulness here is define as the act of noticing new thing. Most of the test conducted should be familiar to those who had been reading about behavioural biases.

We wonder if the tests were tweaked to something unfamiliar, would the result be more significant or the differences level off?

There is a few things that definitely work in having a good life, 1. Sleep, 2. Good nutrition, 3.Exercise and maybe 4. some mindfulness exercise like meditation and yoga.

DeFi:

Mark Cuban says 'Banks should be scared' of cryptocurrency-based DeFi (cnbc.com) which we totally agree. The reason why banks should be afraid is that some of the DeFi platforms have shown that they can operate at scale with a few lines of codes.

Challenger or Neo banks or any new Fintech startup could pick up some tricks from DeFi and may soon be operating at a cost advantage versus the “real” bank.

We are slowly a covert towards the concept of DeFi.

Biology:

a16z has been a treasure trove of knowledge. The podcast, the blogpost are all exceptional. We guess that is expected when it is coming from one of the best VC of this generation.

Extinction Isn’t an End: Mining Ancient Innovation for Future Solutions - Future (a16z.com) talks about the possibility of including all the solutions biology has generated to solve problems, and not just the thin slice that exists today.

Using life four billion years of struggle to survive means four billion years of living experience, of biomolecular tinkering, of exploring novelty and possibility which may just help us find the techniques to solve our current, and future, most pressing problems.

That open up a new way of thinking. For now, we only think about the survivors and never think about the many others who did not survive. The “loser” may not have lost if the environment had been different. We may well be better off learning from everything since as humans we are acquiring the capability to do so.

For businesses in the biology field, the next biology breakthrough may just be about searching for designs of the past.


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