Weekend Reading 9/17/2021

• Contrarian viewpoint that questions the wisdom in benchmarking oneself against peers.
  • “the determination that the organization had to be more like its peers to be successful”….” “tends to be the quickest path to mediocrity”
• In my previous job, I saw firsthand the damage caused by obsessively eliminating variations and hugging a benchmark.
• I think benchmarks are valuable mile-marker and can help measure success and failures on a relative basis from time to time. But once a benchmark becomes a roadmap for operations and performance, you are doomed to be mediocre at best.

• Fred Liu is a terrific investor and well-versed in global markets. In 2020, Hayden Capital was up 222%. That’s not a typo.
  • Sea Ltd (SE) was a core holding that powered this terrific performance. Not only did he identify the power of this company in its early days but he had the fortitude to stick with the stock has it skyrocketed.
• To understand the recent crackdown by the Chinese government, one must understand the context.
  • “In China, you must always keep in mind that capital is simply one of many inputs used to achieve the country’s societal goals….If the well-being of capital must be sacrificed to ensure a better long-term direction of society (higher birth rates, affordable housing, protection of consumer data, a more free-thinking / creative education for kids vs. today’s heavy burden of rote-memorization) then in the Chinese government’s eyes, it’s a worthy trade-off.”
• Much of China’s crackdown is rooted in China’s challenging demographic trends… With population growth negative, China needs to get more out of its workers/citizens. Redirecting resources from the top-down is not out-of-character for China. Below are the population projection charts included in our 1Q21 outlook.
  • What industries could be next? What companies consume resources but do not help China achieve its societal goals? In the above context, it’s not surprising to see the Macau casino companies trading off now…



https://population.un.org/wpp/Graphs/DemographicProfiles/Line/156

• Sometimes the best yet hardest thing to do is nothing.
• “Survivors, Gonzales concludes, face reality, stay cool, and don’t do anything needless or rash that might make a situation worse.”
• I think we saw a good amount of this back in 2020. When the markets were selling off hard, clients and advisors alike have a strong need to do something.
• “the best investors are dead investors”
  • I absolutely agree with this. The anecdotal story I tell is from when I was at Clover. Our tech analyst was second to none. Back in 2013 he was buying Nvidia (NVDA) at a split-adjusted price of about $3.50. The portfolio managers didn’t really understand the story and, despite the analysts pleas, NVDA was sold after a nice gain of approximately 30% or so. There was a client account where the patriarch of the family had passed away. The client’s affairs must have been relatively complicated because the estate sat before the court for a long time. This entire time we were unable to trade the account so this lucky account was protected from our bad decision-making. NVDA was an enormous winner and this was, far and away, our best performing account.
• In addition to our own behavioral biases being stacked against us, the wider financial industry also pushes us towards this faulty decision making process. Financial media, twitter, wholesalers/brokers…. Everyone makes more money based on activity (except for the end-investor).

“If you’re a quarterback, you’ve got to protect yourself and your players. It shouldn’t be the responsibility of your opponent to protect you.”

But also, this… https://www.youtube.com/watch?v=JBr9f3HU3XA