Byrne Hobart
Longreads
- Dwarkesh Patel interviews Patrick Collison. Interesting throughout. One of the best bits was on doing good, particularly on identifying high-value opportunities for personal or corporate donations. Collison offers the example of mannose, a form of sugar—there's evidence that tumors consume it rather than glucose, but can't metabolize it. The problem with pursuing this as a business is that you can't pattern a sugar, just the sugar-making process, so pharma companies wouldn't collect much upside even if it did end up being a useful cancer treatment. But charities don't care much about capturing upside! This is a good way to invert the usual way of doing charity: instead of looking for problems that need to be solved, look for things that would be a good business if only there were a way to charge for them, and do those for free.
- One thing the interview talks about a bit is the question of whether Silicon Valley encourages people to chase the wrong problems, and selects for companies that just don't need that much technical depth. So a good piece to pair it with is Brian Asquith's American Affairs essay speculating that tech clusters are partly responsible for the Great Stagnation. One of Asquith's core arguments is that while industry clusters have agglomeration benefits, they also suck talent away from other places. Which is a tradeoff in two directions: it might be better to have a broader industrial base with more talent distributed more evenly, but it also might be much worse to have five tier-two tech clusters instead of one tier-one cluster.
- One of my favorite archetypes is the nice left-of-center person who is also, on occasion, an utterly ruthless market operator. So, enjoy Irwin Union's story of Piero Sraffa, a socialist economist who bought defaulted imperial Japanese bonds at pennies on the dollar after the Second World War, then sold them and bought gold in 1960, getting a total return of almost 16% compounded over 37 years, which would be an impressive record for a full-time money-manager and which is astounding for a part-time investor who made basically two trades ever, neither in equities. A nice touch: "It is not known how much money he made on this transaction, but the College valued his bequest at £1.5 million in 1983, one half consisting of the value of his library."
- A Warren Buffett deep cut to celebrate Berkshire Hathaway shareholder letter day: breaking down his 1965 decision to invest in Studebaker. What this piece and the Sraffa one linked above have in common is that they demonstrate why finance is such a fun topic to study: people keep records for a long, long time! This is harder for other branches of history: if you're trying to measure historical populations, you have to hope that someone bothered to do a census, that the results weren't fudged or entirely fabricated, and that someone else thought the results were worth storing. But the financial industry is a voracious consumer of data, and since balance sheets need to balance and trades need to clear, there's redundancy built in—someone will have decided that the old balance sheets and trading records might come in handy some day.
- Ken Opalo on Equatorial Guinea's economy after the collapse of its oil production. This is a particularly painful story about the Resource Curse: not only did the government sell out the people by taking bribes on both the production of oil and the distribution of its profits, but they simply didn't make all that much. Opalo: "Decades of access to tens of billions of dollars in flows have not made them independently wealthy. They must continue stealing to stay rich."
- In this week's Capital Gains, we're back on our interest rate kick. This time we look at hurdle rates for corporate investment, i.e. what return a company needs to justify buying a plane, building a factory, or ordering a GPU instead of just cranking up their buyback. One puzzle in corporate finance for which there isn't a definitive answer: companies used to invest if they could earn about four points more than treasury bonds. Now, the required gap is closer to ten.
- And in this week's episode of The Riff, we talk about Walmart's impact on social mobility, the economics of having kids, and the Banana King. Listen with Spotify/Apple/Substack.
Books
Battle for the BirdJack Dorsey, Elon Musk, and the $44 Billion Fight for Twitter's Soul. A funny rule in corporate communications is that you are apparently never, ever supposed to mention your competitors by name, and instead have to say some vague, could-be-anything line like "We saw more aggressive pricing in the cloud market from a competitor who offers cloud computing, retail, and an e-reader" instead. So it's nice when they say what they really think. A decade ago, Mark Zuckerberg said of Twitter that "it's as if they drove a clown car into a gold mine and fell in." Nice one! A decade later, gold is scarce but clowns abound.
As with other books about Twitter, this book is tangentially about tech and mostly about personalities and politics. For whatever reason, Twitter has attracted this in wild disproportion to its size and economic importance. Part of what made the Twitter acquisition saga so bizarre was that Jack Dorsey and Elon Musk are, in different ways, extremely unpredictable people, and they happened to be close friends at a time that made Musk's Twitter deal happen.
Open Thread
- Drop in any links or comments of interest to Diff readers.
- What are some other obscure examples of really great trades?
Diff Jobs
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