Herro, Perro! w.8
Arts & Culture
+Watching the hurricane this week put climate change and the fragility of our environment on the mind. I’d recommend watching or re-watching Wall-e. Sometimes you learn a tidbit about a person that will never leave your consciousness. A friend of mine once shared that he cried at the end of Wall-e and I will forever think that he is a good person. Now I cry at the end of Wall-e too.
+Georgia O’Keefe had a painter sister, Ida! Learn something new all the time. I’ve long admired Georgia O’Keefe. Born in a farmhouse in Wisconsin, made her own clothes, and suffered complete betrayal by her husband. In my adult life the personality that ends to inspire me the most are artists with conviction and originality. But what does it take? That’s the comparison the quotes get at below.
An artist’s life requires discipline and intention: if she doesn’t believe in herself, no one will. Her work must be paramount in her daily life. She must find her ideas urgently compelling, because she must convince the world of their importance. By 1925, Georgia had been living with that urgency and discipline for nearly twenty years; Ida never had her sister’s steely commitment....
But Ida never found a style that held her focus. She was energetic and talented, but timid and indecisive. She never faced the challenge of exploring her own ideas or finding her own voice.....
(On Georgia) In fact, it was while in the hinterlands that she had made some of her most original work. She was never painting for local art shows but for the New York world of the avant-garde. The difference between the sisters was not one of circumstance but of essence. Stieglitz gave Georgia her start, but it was the work that made her successful. Her original, heartfelt, hard-won images overwhelmed many viewers. She was dedicated to the expression of her singular ideas, and to her formidable work ethic. Throughout her long career, Georgia rarely faltered in her dedication,....
Who can say? Ida might have been successful if she’d been her own true supporter, as Georgia had been. An artist can only rely on herself; the world may disregard her. She can never afford to lose her focus on the goal. Ida seemed never to recover the certainty with which she painted the clean, strong forms of the lighthouse. During that long, shining moment, she was working on her own. She’d been focussed on those beams of light, deeply and intently, fully herself.
+’Beautiful People’: Sometimes, you just crave that feeling that you’ve got it all together. You need to go out and have a meal a notch enough into fancy that you couldn’t or shouldn’t make at home. Pair it with an overpriced but well-curated glass of wine. Sit in an elegant setting with the beautiful people and regain confidence via osmosis. For me, I prefer a certain mid-century vibe, slightly European aesthetic. It's about ‘the experience’. For this, in the village, I recommend, Mimi on Sullivan and Babs on MacDougal. They are both owned by the same people and run the same. When it works, it works. Table for two, a seat at the bar alone, or bar with a friend? It’s all good. Any given night you can probably just walk in to one or the other, just like the local who gave you the advice.
Investing & Economics
+Harvard Business School, Seth Klarman, Shareholder Primacy and the financialization of the American Elite. Yay. I’m a recent Seth Klarman reader, having read all the financial economics literature in college and then again this past Spring and Summer. Margin of Safety made its way into my conscious on the plane to Omaha for the Berkshire Hathaway Annual meeting. Well, this was just a fascinating read and critique. Particularly continuing our discussion of BRT and Munger from last week.
Klarmans says:
With an overly narrow focus on the near-term maximization of corporate profits and share price, business leaders leave themselves vulnerable to criticism and harsh regulation. When business owners and business schools fail to regularly ask hard questions about capitalism . . . we increase the chance that when these questions are asked, they will be asked by ideologues seeking to point fingers, assign blame, and make reckless changes to the system. One U.S. senator recently unveiled the Accountable Capitalism Act. . . . This seems both ill-considered and unlikely to work. I doubt this bill will become law. But when capitalism goes unchecked and unexamined . . . the pendulum can quickly swing in directions where capitalism’s benefits are discounted and its flaws exaggerated. . . . While it’s hard to see how this proposed regulation would solve the problems that I’ve raised tonight, it’s exactly the kind of proposal that business will have to contend with when complex issues go unexamined, and when character, sound values, restraint, and long-term thinking fail to gain the upper hand
But the article goes and points the finger exactly at the Klarmans of the world and their use of shareholder primacy:
The new elite also applied their ample talent and superior education to devising financial mechanisms and “business strategies” that captured increasing percentages of their companies’ revenues. They discovered financial engineering techniques to boost stock values without growing earnings or investing in productive assets. Bankers and consultants helped shareholders and boards value, measure, and optimize their equity, which often led to decisions to offshore jobs or purposefully reallocate capital away from asset-intensive industries that employed millions of middle-class Americans. This also resulted in subtler changes to the economy, including, for example, the way Americans plan for retirement. Defined benefit pensions—which created long-term liabilities that financiers struggled to value accurately—were discarded in favor of the now ubiquitous 401(k). This change shifted a generation’s worth of macroeconomic risk off of corporate America’s balance sheet and onto millions of American workers and their families.
...
Klarman arrived at HBS in the fall of 1980 at the outset of this era. His generation of business leaders would navigate their careers with the shareholder as true north. Though they created new business models, hedge funds among them, nearly all of these “innovations” were dependent on the idea that the path to wealth was to align yourself with shareholders, whomever they might be.
This stat also stands out:
As a 2019 report by the U.S. Senate Committee on Small Business and Entrepreneurship shows, the private sector in aggregate has become a net lender to the rest of the economy, a stunning reversal of its traditional role as net borrower and investor in a capitalist system. The report concludes that the U.S. economy is no longer “so much a model of traditional capitalism as it is an indiscriminate mass of savings upheld by federal government net borrowing.”
Ah, and here is the argument Arvind and I made in TechCrunch a few years back:
Moreover, when you ask these same people about financialization’s negative “externalities,” the response is often a shrug. After all, investors have “fiduciary duties” to the teachers and police officers whose retirement savings they manage, and labor costs less in Vietnam than in the Rust Belt. Here, Klarman’s concern about democracy is worth revisiting: if given the choice, would America’s teachers and policemen elect to forgo a few points of alpha if it meant not seeing their communities gutted or their neighbors’ jobs shipped overseas?
Then read the section of Baupost’s PG&E investment, which you can see how it’s a wise to hedge your position. But…. being both an equity investor and an insurance holder of the equity, a fiduciary of the company it does not make.
Here’s the bottom line:
Of course, Baupost is hardly the only fund that employs these tactics; amorally pursuing returns is what hedge funds do, after all. These issues are structural, and no one should be surprised when facile speeches on social responsibility go unheeded. But the glaring inconsistency between Klarman’s sermonizing and his firm’s behavior—and the extent to which it goes unnoticed, seemingly even by Klarman himself—illuminates the depths of American elites’ self-delusion.
...
Klarman’s message that evening at HBS was not an exhortation to reform a flawed system but a warning to established and aspiring business elites alike that they face further scrutiny in the months and years ahead. His career tells us how he would advise those beginning their careers to navigate these challenges: Loudly criticize political dysfunction, but make no effort to explore its structural causes or remedies. Decry political inertia on climate change, but keep your powder dry because it will present excellent investment opportunities. Say the easy things about prioritizing your employees, but never forget that your shareholders come first. Speak of investing as an activity that requires a long-term view, but never miss an opportunity for short-term arbitrage. Stand up for democratic norms, unless, of course, electoral outcomes threaten your returns. When that happens, patiently explain how the market works, and if there is still conflict, use your network, education, and checkbook to cut to the front of the line.
And for that, my friends, we reward A+ to Seth Klarman for practicing the art of cognitive dissonance.
+WeWork announces that they will cut $20-25Bn of potential IPO price which is interesting. But, move up a level, and more interesting is the story with their largest investor, SoftBank. Now, this is speculative, but I’m watching the dynamics created with the complex financial engineering structure, both with the parent company in Japan (second most indebted company in the world with $160bn! Only AT&T has more). And, likely, with the late stage tech companies they’ve invested in a la WeWork and Uber who look underwater from their latest private market valuations. Now, if SoftBank made these investments with massive preferences if valuation targets aren’t hit, the follow on returns of the other investors and founders are…less. Josh Wolfe of Lux explains the implications here and in further detail here that also includes macroeconomics and the amount of indebtedness in the public markets. BBB indebtedness at dinosaur corporates, tech growth companies with no profits…What a time to be alive! “everything is interconnected and we won’t know how until it all ends” Sounds right.
+Activist investing in SaaS darlings - Starboard announced a 7.5% stake in $Box. I’ve long found Box a slightly annoying corporate feature and far from a standalone product. I’ll be closely following how this plays out. Expired dual class share structure, techie CEO meets NY finance. Now, here comes the shock from tech land but seriously, box!?!? It STILL loses money. What did you expect? My view (per Josh Wolfe) is this is the beginning of the narrative change of profitable growth vs equity funded growth. And any company that has equity funded growth that is slowly in down is going to get double scrutiny.
Entrepreneurial Pursuits
Should institutions who do good advance their cause blind to the morality of the source of the funding? This news out of MIT Media Lab is on fire - front row into institutional meltdown. Joi Ito, the longtime director has faced pressure to resign after it’s come to light he took money from Epstien. Now the founder of the lab (Negroponte) has weighted in and said ““If you wind back the clock,” he added, knowing what he now knows of the Epstein allegations, “I would still say, ‘Take it.’” And he repeated, more emphatically, “‘Take it.’”
Negroponte stood up, unprompted, and began to speak. He discussed his privilege as a “rich white man” and how he had used that privilege to break into the social circles of billionaires. It was these connections, he said, that had allowed the Media Lab to be the only place at MIT that could afford to charge no tuition, pay people full salaries, and allow researchers to keep their intellectual property.
Negroponte pressed on: in the fundraising world, he said, these types of occurrences were not out of the ordinary, and it shouldn’t be reason enough to cut off business relationships. It wasn’t until another woman yelled “Shut up!” twice that Negroponte mumbled “Good grief,” and sat down. Soon after, the meeting disbanded.
+Mind scramble of thoughts. Should institutions (companies/nonprofits/universities) aggressively solicit money from the wealthy without regard to how the wealth was obtained or how those individuals conduct themselves? Should Joi Ito be forced to resign for his role in managing (or not) the donations and the scandal?
The question I landed on is do you believe the maxim “Behind every great fortune there is a crime”? And does it matter? And if it matters, to what degree? The strangest thing in the Epstein phenomena is that no one seems to be able to figure out how this guy who never graduated from college was able to amass so much wealth.
Perhaps, we need to take a greater examination how some of the ultra wealthy have made their fortunes (both initially and then, probably more importantly, investment income) and take hard look at our tax code and offshore havens. Shouldn’t institutions that do good for society (like MIT media lab) have sources of capital that come from taxes and/or the fines levied by those who didn’t play by the rules? If you connect this to Munger’s point on Crony Capitalism and our need for market players to have morals, do we believe the only way to get there is by shame and consequences for bad deeds and those who allow those who have conducted bad deeds to wash their money and trade it for influence?
Liberal Democracy and technology
+It’s time to move off Chrome and Google search. Look no further than this in the FT: “Google is secretly using hidden webpages that feed the personal data of its user to advertisers, undermining its own policies and circumventing EU privacy regulations that require consent and transparency.” The Brave founder ‘found six separate pages pushing out his identifier after a single hour of looking at websites on Google’s Chrome browser. The identifier contained the phrase ‘Good_push” and was sent to at least eight adtech companies.” Gross. As someone on Twitter stated: Surveillance Capitalism Truths: 1. They keep everything. 2. They sell everything about you. 3. They often lie about #1 and #2.
+So clean up your browser and search activity. You probably use Chrome. Most people do. Make a proactive choice. Now it can be tough because many web apps work better on Chrome (this is how they get you). But you can easily change your default and here is a list of 5 chrome alternatives. I use Brave because I’m fascinated by the Basic Attention Token, which is what you get when you allow them to show you ads. I used Brave with token mode on for ~2 months and got precisely 2.3 BAT or 38 cents. Back to the get-rich-quick drawing board, I’ve now turned that feature off :). I like were they are going and that’s some Who Owns the Future, free-market-competition-might-prevail optimism.
+Let’s talk DuckDuckGo next week. Just remember it's important to implement both Desktop and Mobile!
Reflections & Self-awareness
+Pretty emotional read on life priorities and a reminder of how quickly life can change. Get extra hugs this weekend.
+Let’s end on a high note: Good karma of the week go to guy who adopts all the old dogs from the animal shelter. I imagine this guy will be Paul Slattery in a matter of years :).
+Herro, Perro has no sports section and there will be no sports section. But I love following the characters AND I am decently good at reading emotional tea leaves, hence Coco/Naomi last week. So I am going to wager a prediction. Saturday Serena Williams will win the US Open 20 years -TWENTY YEARS! - after she won her first US Open win at age 16. That's 24 Grand slams for Serena. It's her time and it’s going to be glorious. I will be a wedding but we can all watch the videos and feel the feels.
+Another prediction, I watched Daniil Medvedev beat Stan Wawrinka in the quarterfinals on Tuesday (everything about that experience was beautiful, worth making attending a priority) and I’m convinced he’s going to be a star. It’s obvious that his performance is rising, of course, but I'd go further based on his personality and seeing him battle it out. Sort of reminds me of myself picking stupid fights in my early twenties and then sort of regretting it. I like him. He’s funny.