The Digest #77
J&J's Vaccine, The Newly Rich, Via Negativa, Costco, GEICO, Alibaba, Li Lu
“It is well known that humor, more than anything else in the human make-up, can afford an aloofness and an ability to rise above any situation, even if only for a few seconds.”
— Viktor Frankl
The Story of One Dose by Jeff Wise, April 5, 2021. On April 13, the CDC recommended a pause in the use of the Johnson & Johnson COVID-19 vaccine due to six reported cases of severe blood clots. More than 6.8 million doses of the J&J vaccine have already been administered in the United States. The pause is unfortunate and whether doing so was warranted is a subject of debate. This article presents the history behind the J&J vaccine, how it differs from the mRNA technology used in the Moderna and Pfizer vaccines, and describes some of the manufacturing problems at a subcontractor facility that recently ruined 15 million doses. (New York Magazine)
Kati Kariko Helped Shield the World From the Coronavirus by Gina Kolata, April 8, 2021. Dr. Kariko’s early work on mRNA starting in the 1980s paved the way for development of Moderna and Pfizer-BioNTech COVID-19 vaccines. There were plenty of early failures along the way: “There’s a tendency when scientists are looking at data to try to validate their own idea,” Dr. Langer said. “The best scientists try to prove themselves wrong. Kate’s genius was a willingness to accept failure and keep trying, and her ability to answer questions people were not smart enough to ask.” (New York Times)
Madoff’s Weapons of Influence, February 22, 2009. Bernie Madoff died on April 14 at the age of 82. Madoff was serving a 150 year sentence for a Ponzi scheme that defrauded thousands of investors over several decades. Madoff’s crimes would not have been possible without his use of a number of psychological weapons, among them social proof, authority, and perceived scarcity. This article published in early 2009 explores how he used some of these weapons of influence. (The Rational Walk)
How People Get Rich Now by Paul Graham, April 2021. “In 1982 the most common source of wealth was inheritance. Of the 100 richest people, 60 inherited from an ancestor. There were 10 du Pont heirs alone. By 2020 the number of heirs had been cut in half, accounting for only 27 of the biggest 100 fortunes. Why would the percentage of heirs decrease? Not because inheritance taxes increased. In fact, they decreased significantly during this period. The reason the percentage of heirs has decreased is not that fewer people are inheriting great fortunes, but that more people are making them.” (PaulGraham.com)
Confessions of an Overnight Millionaire by Anonymous, April 12, 2021. Many things in life are path dependent. There is a huge difference between arriving at a position of financial security after decades of work and getting to that same point nearly instantly after a few years at a startup. This anonymous article is an interesting glimpse into the mindset of someone experiencing sudden wealth. (New York Magazine)
Loneliness, Anxiety and Loss: the Covid Pandemic’s Terrible Toll on Kids by Andrea Petersen, April 9, 2021. I am increasingly convinced that many children have effectively missed an entire year of education due to the pandemic. The technology-heavy online learning model might work reasonably well for high school and college students but it’s hard to imagine how anyone thought it could work for younger kids. This article is one of many I have read recently that describe the fallout. (WSJ)
Our Brain Typically Overlooks This Brilliant Problem-Solving Strategy by Diana Kwon, April 7, 2021. When most people are faced with a problem, they tend to want to add elements to the mix in an effort to find a solution. It is less common for people to subtract elements. Why is this the case? A recent study may offer some clues. As an aside, this article reminded me of the concept of Via Negativa, often thought of as “wisdom through subtraction.” (Scientific American)
Costco: Relentless Focus on the One Thing, April 14, 2021. Patrick OShaughnessy, Zack Fuss and Chris Bloomstran discuss Costco’s business model and history. Costco operates a membership-centric business model and seeks to drive margins as low as possible in order to create unbeatable value for its members. The Kirkland private-label brand has also been a very powerful part of Costco’s moat. Originally established to provide a lower-cost alternative to name brand products, Kirkland is now a powerful brand in itself, and available only at Costco stores. (Business Breakdowns)
Talking Taxes with Phil Demuth, April 4, 2021. We are facing a great deal of uncertainty regarding the future course of tax policy in the United States. The massive budget deficits of the past year along with longstanding structural imbalances make tax increases a foregone conclusion. However, we are not likely to have clarity on the details until later this year. This podcast covered a lot of ground related to tax policy. I particularly liked the discussion regarding retirement accounts and how to best use traditional and Roth IRAs. (Bogleheads on Investing)
The Art of Short Selling, April 13, 2021. Phil Ordway, Elliot Turner, and John Mihaljevic discuss the analytical process involved in deciding to sell a stock short. Many investors seem to think that selling a stock short is the opposite of going long. However, this is not the case. Short selling exposes an investor to a different set of risks. Most importantly, a short seller faces theoretically uncapped losses. An investor who is long on a stock can only lose a maximum of what has been invested. I found this discussion interesting even though I have never shorted a stock and probably never will. (This Week in Intelligent Investing)
How I Built Resilience: Ethan Diamond of Bandcamp, April 8, 2021. The pandemic made it impossible for musicians to perform in front of live audiences and disrupted the entire music ecosystem. Bandcamp offers musicians a way to connect directly with fans. Ethan Diamond co-founded Bandcamp in 2007 to provide a way for independent musicians to sell their music online. The business took off last year during the pandemic. Bandcamp normally takes a cut of each sale but has promoted “Bandcamp Fridays” on the first Friday of each month when the revenue-share is waived. I have dozens of albums purchased from Bandcamp — it works very well. (How I Built This)
Capital Allocation, 1976: Buffett Buys GEICO, April 14, 2021. Geoff Gannon and Andrew Kuhn discuss Warren Buffett’s history with GEICO. Buffett’s history with the company goes back seven decades to when he wrote up the company as The Security I Like Best. Buffett famously took the train from New York City to Washington D.C. on a Saturday where a janitor let him into GEICO’s headquarters. Somehow the 21 year old Buffett was able to meet with Lorimer Davidson. The four hours Buffett spent with Davidson “changed his life”. Berkshire Hathaway later become a large shareholder of GEICO and eventually acquired the entire business. (Focused Compounding)
Value Investing In China
Charlie Munger’s Daily Journal Corporation recently revealed a position in Alibaba Group, one of the most important businesses operating in China. This was the first transaction (reportable on form 13-F) that Munger has made in over six years so naturally it attracted a great deal of attention. For an introduction to Alibaba, I recommend Alibaba: A Giant Among Giants, a recent podcast published by Colossus.
There is no doubt that Charlie Munger’s views on China have been influenced by his long association with Li Lu. Back in 2010, Munger implied that Li Lu would most likely take on a formal role at Berkshire Hathaway. Of course, this has not happened yet but perhaps it will at some point in the future.
On April 9, Bruce Greenwald and Li Lu discussed value investing in China. A transcript of the conversation is also available. This is a must-watch interview for anyone interested in Chinese investment opportunities.
The Body: A Guide for Occupants
Last weekend, I picked up a copy of The Body: A Guide for Occupants by Bill Bryson while browsing new releases at a local bookstore. Bryson has a way of making complicated topics interesting and entertaining for a wide audience.
There isn’t any way to present a complicated topic like human anatomy in a 400 page book without simplifying matters significantly but Bryson doesn’t dumb it down and extensive notes and recommendations for further reading are provided.
I found the chapter on the heart particularly interesting. The human heart weighs under a pound and is responsible for pumping around 70 gallons of blood every hour. It beats about 100,000 times per day and as many as 3.5 billion times over a lifetime. Heart disease is the leading cause of death in the United States and there are many ways in which things can go badly wrong. Fortunately, technology has improved outcomes for millions of people afflicted with heart disorders.
I’m about halfway through the book and can recommend it.
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