Circle of Competence Issue #61

May 12, 2019

QUOTE OF THE WEEK

 

"Lost time is never found again." - Benjamin Franklin

 

 

FOOD FOR THOUGHT

 

Charlie Munger discusses architecture, rationality, Wells Fargo, personal routines, big tech, politics and more (Wall Street Journal)

 

I love reading and listening to everything Charlie Munger has to say because his mind is one of the very few I've come across that can draw ties from topics as far reaching as evolutionary biology and architecture to finance and politics. Two of the most interesting questions I picked out from the interview are below. I am surprised to see that Munger believes Facebook will weather the political storm brewing around its monopoly over social media and privacy issues (see op-ed by Facebook founder Chris Hughes below for a different take on the issue). He of course is fairly conservative so I can imagine why he may take this stance, but he offers a more historical perspective as opposed to the modern technologist point of view that Hughes takes below. 

 

Q: Can big tech companies survive the political pressure to break them up?

 

A: The answer to that is yes. I don’t think that when these tidal forces of change come in, the politicians, it’s like pissing against the tide. It won’t work. It’s just, the tide is too strong. And my maternal grandfather was in wholesale dry goods. And that had been a permanent fixture of the economic world of the United States for a quarter-century, wholesale dry goods. And when the 1920s came and the chains and Sears Roebuck’s rose, every wholesale dry-goods house in the country went broke. Nobody misses them! Nobody could stop the tide, and nobody’s going to stop the internet that enabled me to get that table for $100. And everybody’s threatened by it. And it’s not going away. And it shouldn’t go away. Those tides are important.

It’s bad for the people whose business gets hit. But it’s good for the world that the—what would it be like if we were all digging for potatoes together?

 

Q: A lot of young Americans seem to be turning against capitalism, on the grounds that income inequality is out of control. What can be done about that?

 

A: The world as I know it, from personal experience and from reading, has always concentrated power.

 

Without the inequality, you don’t get modern private-ownership capitalism, which is what produces the plenty. And so even your kids, if they tried to make an equal civilization, and farm the land that way, would end up with not enough to eat. You’ve got to have individual ownership of a lot of things, with somebody getting and gaining for himself, because otherwise you don’t get the plenty. And the only option you have is to make the social safety net big or small, and you can make it stupid or [you can make it] wise[r], the richer you are.

 

In other words, the better your inequality-producing civilization that produces the plenty is, the more you’ve got to put into the social safety net. Now if you get a place like Denmark or Sweden or something, a lot of these modern students would like it better, free education, free medical care and so forth. And if you have to bet, the United States will be way more like Canada pretty soon, in terms of more free education at the university level and more Medicare and some kind of medicine for all. And that we can afford without ruining the productivity of the civilization.

 

…. We can afford [a higher minimum wage]. If you make it too high it will be counterproductive but yes, a prosperous civilization can have a higher minimum wage the way it can have a social safety net. Don’t make it too great and you can afford it.

 

I have more Democratic children than I have Republican children. I’ve got both.

 

 

It's time to break up Facebook (Chris Hughes, New York Times)

 

I have been studying the case against Facebook a lot recently and as best I can tell, it hinges on a couple of key points: 1) Facebook has a monopoly on the social media platform space with Facebook, Instagram, and WhatsApp with billions of users on each and 2) it has done some nasty things to user data that have resulted in all kinds of data mining, fake news targeting, and election meddling. I for one am not on any of their platforms as I do not find their product useful for anything other than wasting precious time that I cannot recoup. I cannot seem to understand why the 'Delete Facebook' movement did not grow legs as some would have hoped because by simply removing social media from one's life, he regains so much time daily that can be used to engage with friends in real life, learn new skills, and enjoy life more fully. The deeper problem that I see with Facebook is not their monopoly on social media or their abuse of user data, but rather the billions of potentially productive hours that people worldwide spend on their platforms every day. It's asinine. 

 

 

Zillow wants to buy your house (New York Times)

 

There is a lot of hype nowadays around OpenDoor, Zillow, and RedFin 'ibuying' programs simply replacing the traditional real estate brokerage model using their deep technology platforms. But the capital intensity of buying a house with the sole purpose of reselling it is very different than the capital light model of traditional real estate brokerage. These two quotes say it all:


"At best, skeptics see instant buying, also known as “iBuying,” as an overhyped, capital-intensive business whose explosive growth will fizzle once investors tire of profit margins that Zillow itself calls “razor thin.” At worst, they worry that it could bring volatility and risk to an industry that has already brought down the American economy once this century."

 

" The question no one can yet answer is what will happen to iBuyers — and iBuying — when the housing market inevitably cools, leaving companies holding thousands of homes that are worth less than they thought."

 

 

WRITTEN WORD

 

TOP READ: Charlie Munger discusses architecture, rationality, Wells Fargo, personal routines, big tech, politics and more (Wall Street Journal)

 

It's time to break up Facebook (Chris Hughes, New York Times)

 

Buffett and inverse emotionalism (Frank K. Martin)

 

How private equity is turning private prisons into profits (The Nation)

 

An overview of macro trends affecting oil prices (Absolute Return Partners)

 

Visualizing the tech unicorn landscape in 2019 (Visual Capitalist

 

Visualizing the eSports industry boom (Visual Capitalist)

 

 

SPOKEN WORD

 

TOP LISTEN: Berkshire Hathaway's full 2019 annual meeting replay (Yahoo! Finance)

 

Azeem Azhar on AI and the genetic revolution (Exponential View)

 

Value investing with Mohnish Pabrai (The Investing Podcast)

 

Ivy Zelman discusses real estate with Barry Ritholtz (Masters in Business)

 

A primer on life sciences investing with Jenny Rooke and Jared Seehafer (Venture Stories)

 

The a16z pitch room: Sandbox VR's pitch and pitch deck (a16z)

 

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