Longreads + Open Thread

Longreads

• Derek Owen and R.M. Schneiderman in Politico on double-agents and spy hunts over many decades in the FBI. (The article is pretty explicitly an effort by the FBI to lobby Kash Patel to do more counterintelligence rather than focusing entirely on law enforcement. Still a fun story!) Catching double agents is a fascinating problem, because they're a known risk—if you're hiring competent spycatchers, you're hiring people who can think like spies, which means you're hiring people who would make excellent spies and giving them access to a lot of the information spies look for. But there's a thin line between paranoid enough to catch double agents and too paranoid to get anything done. Fortunately, that same good-spycatchers-make-good-spies fact works in the other direction, too; the big break in finding a major FBI spy started with an ex-KGB officer who decided to cooperate with the US.
• Adam Aaronson plays some word games. If you like the idea of the crossword puzzle clue "turns into a different story" yielding the answer "spiral staircase," and you like taking random observations way too seriously and going to great lengths to formalize them, you'll love this piece.
• Dwarkesh Patel interviews Victor Shih on China. This is a great refresher, because many of the policies that made China such a high-growth outlier have now made it a low-growth, over-levered country that needs deep reforms to avoid a crisis. Ironically, as Shih points out, one of the reasons they're in that position in the first place is that the Chinese Communist Party is obsessed with stability and remaining in power, and is willing to accept serious tradeoffs to do so. That has made them the world's longest-lasting communist state, but it's also given them one of the world's least sustainable economies.
• From Kitten Beloved: College English Majors Can't Read (plus the follow-up, and also see this piece on why you can't blindly extrapolate from the results). I've spent a lot of time teaching my kids various academic and academic-adjacent topics over the last few years, and the biggest short-term variable seems to be motivation—not in the macro-scale sense of wanting or not wanting to learn, but in the very micro sense of sometimes reading a sentence or looking at a math problem and being very obviously unwilling to think hard enough to get the answer, despite being capable of doing so. Which, given that brains are calorically expensive, is probably the right approach from an evolutionary standpoint, in much the same way that enjoying sugary snacks is. Part of the implicit goal of education is to get people in the habit of stopping to think for a bit. In this case, the prose is obscure, and it's hard for a modern English speaker to interpret older idioms or references to early 1850s pop culture. But! Figuring this kind of thing out from context clues is a fundamental part of literacy! Unless you restrict yourself entirely to reading things that were written after you started following the news and being generally aware of what was happening in the world, you'll be reading plenty of things written for an audience that had different assumptions and a different mix of common knowledge. (One funny result of this is that kids who like reading a lot will end up very well-versed in the pop culture of a generation earlier, because that's what's reflected in the books their parents leave around the house.)
• Debbie Nathan and Alyssa Katz on a weird billboard beloved by hipsters that turns out to be tied to a long-running series of real estate scams. The full story is actually quite depressing, since it's a grift that systematically took advantage of people who didn't know how to interact with the legal system, but who were conscientious enough to earn the money necessary to buy and manage commercial real estate in an expensive city. For the victims, this was the only time they'd run into a legal problem where the lease they signed mysteriously gave their tenant the right to buy the entire building at below market value. But for the perpetrators, defending such a transaction in court was just another day at the office. (Via The Browser.)
• In Capital Gains, we look at why most things don't trade on a market. It's much easier to buy and sell shares of Apple than to bet on the price of a bushel of apples. Markets are actually rare, and rely on goods being fungible and having some uninformed market participants who liquidity providers are willing to trade with. As it turns out, this helps explain not just why markets sprout near ports, but why transshipment, i.e. importing goods and then exporting them to somewhere else. This turns out to create the key infrastructure and attract the market participants who make markets themselves work.
• A quick tech demo: casual readers and superfans alike are encouraged to check out this new and improved chatbot trained on Diff answers. We'll be fully switching over the site's version soon, but this one uses more recent models and has a much more comprehensive corpus. The full site has many more. (I'm an advisor.)

Books

The Snowball: Warren Buffett and the Business of Life: a reread in advance of this month's Fintwit Book Club (coming soon to a Longreads + Open Thread near you!). This book had incredible timing, being a paean to value investing that came out in late 2009, when there were lots of interesting value investments available. It's also a book about making the occasional big bet on distressed financials (Amex, GEICO, Wells Fargo)—it was a little late for that, but this, too, was fortuitous timing, since catching falling financial knives was a good way to get wiped out in 2008.

As my cohost noted, if you read this book in your early 20s you'll probably focus more on the great investments and pithy aphorisms, whereas if you read it a decade or two later you'll spend more time dwelling on things like Buffett's wife leaving him because he was so emotionally unavailable, or his kids taking a while to find their footing as adults. (In another one for the early-bloomer files, one of his sons, as a five- or six-year-old, expressed emotional turmoil by playing "Yankee Doodle" in a minor key on the piano. He ended up having a successful music career.)

The text of the Buffett story is that he used common sense to make a series of good investing decisions while the rest of Wall Street was obsessed with increasing abstruse economic theories. On the other hand, Buffett was able to lob in a bid for a big distressed quant fund, LTCM, in part because he was generally familiar with the strategies they were running. The book's footnotes also have some references to Buffett using options to juice returns as far back as the 70s, and hustling for a cheaper borrow on his hedges in the 60s. He's a finance guy! He has a Midwestern accent and a multi-decade track record of superior risk-adjusted returns, and in a sense having a home base in Omaha is just the Buffett-flavored equivalent to Templeton running his fund from the Bahamas or J.P. Morgan negotiating truces between railroad titans aboard his yacht. Sometimes, it's nice to cultivate a quirky home turf advantage.

As a businessman and investor, Buffett is hard to emulate and impossible to ignore, because those points aside he really did earn his money mostly from buying dollar bills for less than fifty cents. One way to split up his career is to say that he started as a deep value investor, quickly saturated that market, and switched to quality plus the occasional pricey rescue deal. But another read is that he started out investing in bad companies where the upside partly came from engineering good outcomes, or hoping someone else would do so, and switched to buying solid companies with steady buybacks so he could continue to compound without some kind of high-conflict catalyst.

The Optimist: Sam Altman, OpenAI, and the Race to Invent the Future: When I first started reading business biographies, in the late 90s and early 2000s, the ones I got my hands on were often very involved productions, full of detailed backstories—you might get a chapter on what the subject's hometown was like, then a detailed family tree, interviews with people who'd known their parents as kids, etc. More recent ones tend to skip all of this and get to the good stuff, but that means that reading a business biography has the same feeling as hearing about someone in the news—they came out of nowhere and suddenly started accomplishing stuff! The Optimist is a return to the older model, with lots of background on just where Altman came from. So we know, for example, that having a social mission with a P&L attached is the family business—Altman's father was an affordable housing activist who found a tax-efficient way to get such housing financed. (It was also interesting to me specifically, because Altman and I are roughly the same age and grew up in the same city, and, as it turns out, both hung out at the same coffee shop, Coffee Cartel, in the early 2000s.)

The other thing good business biographies used to do was to find some common thread that they could continuously call back to. That doesn't quite happen in this book, but the theme that does show up over and over again is leverage. Not in the literal sense that Altman borrows a lot of money, but in the sense that, over and over again, he structures his life in order to get access to resources—;people, brand names, money—that he can repurpose elsewhere.

Altman's first company, Loopt (disclosure: I did some consulting for them at one point) didn't work out too well, but it did a) get him connected to the Silicon Valley funding ecosystem, and b) demonstrated an ability to close low-probability deals with much bigger companies through sheer force of will. It's a combination that continues to come into play through the rest of his career.

The maximally cynical view is that Altman is a relentless, amoral climber, who's constantly taking whatever opportunity gives him the best range of next follow-up opportunities to take: it's hard to imagine that OpenAI would have gotten the talent and resources it had as a nonprofit if it hadn't been run by someone whose day job was managing Y Combinator, and after a while Elon Musk seemed convinced that his charitable donations had actually been non-dilutive seed funding for an AI business Altman would run. But it's equally valid to read Altman's career trajectory as a series of reasonable responses to a rapidly-changing environment: Loopt had a totally different business once the App Store existed, and those bold business development strokes turned out not to be the key differentiator. But a business full of people who'd been thinking about mobile apps for longer than most of the business world had been aware of them was a valuable asset. And the right person to run YC is probably someone who knows what success looks like and has a visceral feeling for how it can all melt away. Meanwhile, AI really was becoming a bigger and more important field over time—AlphaGo was a case where a problem people had breezily assumed would be unsolved by computers for another decade or two turned out to be doable. If you've worried about AI before, and suddenly the timeline lurches forward by that magnitude, of course it changes your behavior.

The leverage model runs into limits after a while. It's impressive to be able to marshall lots of other people's resources towards your own projects, and if one of your projects is the relentless acquisition of access to more such resources, compounding happens fast. But ultimately, all of that needs to be deployed somewhere; in retrospect, Altman spent his entire career up through the launch of ChatGPT making himself uniquely positioned to make an unprecedentedly massive bet. And right now it's not clear how that bet will pay off.

Open Thread

• Drop in any links or comments of interest to Diff readers.
• What are some older business biography masterpieces? It seems that the genre is fairly recent, and contemporary books about robber barons and the like were either hagiographies or hit pieces. Whereas the fleshed-out portrayals of these figures—Titan, Wall's Carnegie, The Life and Legend of Jay Gould, came later.

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