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The Digest #153
Apple in China, Forecasting, Financial Nihilism, Taking Notes in Longhand, Wright Brothers, Jacob McDonough on Berkshire Hathaway
Quote of the Week
“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying ‘no’ to 1,000 things.”
I have decided to stop publishing Weekly Digests after this issue so I can devote more of my time to writing original content.
The intent of the Weekly Digest has been to provide readers with curated links to content with a high signal-to-noise ratio. However, this requires a great deal of time every week and inevitably results in less time available to work on original content.
In recent months, I have expanded the scope of business profiles far beyond what I envisioned when I started the series in May 2022. Producing a high quality “deep dive” into a business every month is a tall order and is nearly a full time effort if done properly. The next profile covering Daily Journal will be published later this month.
In my available time after working on profiles, I plan to write original content such as Earning Wisdom or reviews of books like Damn Right! — Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger. I also hope to write more briefings such as my coverage of Tyler Technologies and Journal Technologies.
I will continue offering free content to readers, but the majority of my time will be devoted to paid content. Since the scope of paid content has expanded compared to when I originally set pricing, the subscription price has increased to $20 per month or $180 per year. These new prices will only affect new subscribers. Readers who have a paid subscription will not see a price increase at this point.
I would recommend subscribing to the following publications which usually include links to worthwhile articles and podcasts in addition to great original content:
Santangel’s Review Value Links Newsletter (Scroll to the very bottom of the home page for the newsletter sign up)
What it would take for Apple to disentangle itself from China by Patrick McGee, January 18, 2023. It is no secret that Apple is highly dependent on China and this is likely to remain the case for years (or even decades) to come. “The operations that Apple orchestrates are so complex and massive — including factory hubs the size of western cities in China — that it is not at all clear the world’s biggest company has any viable options to overhaul the way it rolls out $316bn worth of iGadgets each year. “Nobody comprehends the scale of Foxconn’s manufacturing efforts, until you see it with your own eyes,” says Brian Blair, a former tech analyst who has repeatedly toured the key Apple supplier’s facilities in China. “It’s like trying to describe New York City to a villager.” (Financial Times)
Permanent Equity 2022 Annual Letter, January 17, 2023. This is an interesting letter sharing lessons learned from fifteen years of acquiring small businesses using an approach very different from the typical debt-laden private equity model. “To date, we (individually and on behalf of our funds, PE I and PE II) have invested $133.4M and received back $65.9M in cash returns. For the period beginning with the firm’s purchase of our collection of pool-related companies in 2015 and ending at the beginning of 2023, this represents a 29.1% cash on cash IRR across the system as a whole …” (Permanent Equity)
The Art and Science of Spending Money by Morgan Housel, January 12, 2023. This is a terrific essay on the complex relationship many people have with money — Either spending too much or, in some cases, spending too little. “I wrote a letter to my son the day he was born. It says, in part: You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does – especially from the people you want to respect and admire you.” (Collaborative Fund), January 13, 2023. "As Daniel Kahneman, the world’s leading authority on human error, has carefully explained, ‘The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.’ So, it remains unpredictable, but lots of folks are going to try anyway." (The Better Letter), January 14, 2023. "When you make and/or lose a lot of money quickly, without the ability to see exactly why and how the windfall or bust happened, it can lead to financial nihilism. When you see—or think you see—other people doing the same, it can lead to financial nihilism. When you work very hard and do All the Right Things (as Dave Ramsey, or some other financial guru, would have you do) and then proceed to lose most of your net worth in the course of a month due to unexpected circumstances, it can lead to financial nihilism.” (Anti-Mimetic)
Without Consciousness, AIs Will Be Sociopaths by Michael S.A. Graziano, January 13, 2023. Anyone who’s had the unfortunate experience of interacting with a sociopath will cringe at the thought of an army of AI bots exhibiting such characteristics. A neuroscientist specializing in the brain mechanisms of consciousness shares his thoughts. “A sociopathic machine that can make consequential decisions would be powerfully dangerous. For now, chatbots are still limited in their abilities; they’re essentially toys. But if we don’t think more deeply about machine consciousness, in a year or five years we may face a crisis. If computers are going to outthink us anyway, giving them more humanlike social cognition might be our best hope of aligning them with human values.” (WSJ)
A Learning Secret: Don't Take Notes with a Laptop by Cindi May, June 3, 2014. A reader sent me this article after I wrote Earning Wisdom earlier this week. Students who take notes in longhand appear to retain information more readily than students who use laptops. Since writing in longhand takes more time than typing, students are forced to synthesize and summarize their notes rather than just type what a teacher is saying verbatim. This is one of many examples of how technology can produce negative effects in classrooms compared to paper and pencil. (Scientific American)
Short Term vs. Long Term by Nick Sleep. Most companies should focus the most energy on one constituency: the customer. “We reason that if a firm’s relationships with its customers is profitable and enduring, then that will provide the cash flow to pay a decent salary to its employees, a fair price to suppliers, a dividend to shareholders, the tax people can have their take and, crucially, still leave something to reinvest in new and better products. A self-reinforcing virtuous spiral can be established.” (The I.G.Y. Foundation), January 15, 2023. It took fifteen ballots to elect the Speaker of the House earlier this month but that was nothing compared to the 133 ballots required to elect a Speaker in 1855. There have been a total of fifteen contested elections for Speaker of the House in American History. This article provides an interesting historical perspective (Imperfect Union)
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Podcasts and Videos
After reading Flights of Fancy by Richard Dawkins and writing about the book, I was in the mood for more content on taking to the skies. I listened to two Founders Podcasts episodes on early pioneers of flight. One of the episodes is about David McCullough’s book on the Wright Brothers which I reviewed in 2020 and highly recommend.
The Wright Brothers, March 29, 2022. 1 hour, 33 minutes.
The Wright Brothers, Glenn Curtiss, and the Battle to Control the Skies, April 14, 2022. 1 hour, 27 minutes.
Private Equity and the Game of ”Volatility Laundering”, January 15, 2023. 49 minutes. “In this episode, co-hosts Phil Ordway, Elliot Turner, and John Mihaljevic discuss the private equity asset class and the dangerous game of "volatility laundering", a concept popularized by Cliff Asness.” (This Week in Intelligent Investing)
Related Article: Why Does Private Equity Get to Play Make-Believe With Prices? by Cliff Asness, January 6, 2023. (Institutional Investor)
Warren Buffett and Charlie Munger speaking directly to you, January 16, 2023. This is a podcast about Peter Bevelin’s book, All I Want To Know Is Where I'm Going To Die So I'll Never Go There. Although many of the takeaways from the podcast refer to topics that longtime followers of Warren Buffett and Charlie Munger will find familiar, the book sounds like it is definitely worth reading. (Founders Podcast)
WeChat: China’s Operating System, January 18, 2023. 53 minutes. “WeChat is the default operating system for life and business in China. Founded inside of Tencent in 2011, it is the original super-app, and its 1.3 billion monthly active users can order food, message friends, play games, pay bills, shop and more on the service.” (Business Breakdowns)
A Fireside Chat with Jacob McDonough
This is an interview of, the author of Capital Allocation: The Financials of a New England Textile Mill which documents Berkshire Hathaway’s financial history from 1955 to 1985. I wrote a review of the book in 2020. h/t Joe Koster
New York City Skyline in 1922
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