A few weeks ago, I came across the following remark from Joe Weisenthal in my Tweet feed: “Smart people can’t help but try to poke holes in things, and see the weaknesses in existing systems.  But long-term investing requires a certain amount of dumb confidence that things will all work out over time, even if […]

Planet Money, Ep. 795 (Is Record Breaking Broken)

“Companies started coming to [The Guinness Book of World Records] asking if we could fly someone out to their event.  Companies and people were coming to Guinness wanting to break a record for publicity or to draw attention to themselves.  They’ve gotten on to the fact that if they achieve a record title, they get a lot of press for it or shares on social media.  Increasingly, they want to make it more of a marketing event, they want to invite one of our adjudicators and the usage of the logo.  Guinness realized that they could charge for this, a lot.  The price tag for a full service event starts at $12,000 and goes up over half a million…they do hundreds of events like this every year. […]

Guinness’ main customers used to be kids who were just fascinated by the people who were breaking the records and pushing the limits of what it meant to be a human.  Guinness’ customers now are the record breakers themselves.  If you pay Guinness enough money, they will help you figure out a record you can break and they will help you break it….Guinness is now in the business of selling record-breaking events.”

Mad Money w/ Jim Cramer (10/6/17)

Jim Cramer on Switch:

“As technology gets better and better we’ve seen a ridiculous explosion in the amount of digital information out there.  Companies that want to know what’s going on need to keep track of tons of data.  By some estimates, there are going to be 200bn smart devices connected to the web by 2020.  Even now, the average person generates 3GB of data per day.  We use the internet for everything and increasingly store data in the cloud, which means some datacenter somewhere is where it goes.

Your typical datacenter is just a gigantic building, it’s packed with networks, servers, and air conditioning equipment…but Switch is different.  According to them, the kind of datacenter you need to run a low cost consumer service like Apple Music is just not the same as the kind of datacenters that work best for business critical data storage or highly complex work loads with highly sensitive and regulated information.  Switch has actually patented their datacenter design, the layout and cooling systems allow customer to run more power through their machines.  On top of that, Switch’s platform makes it easy for clients to rapidly deploy or replace technology infrastructure.

Switch’s revenue grew at a 17% clip in 1h17 and while that’s a bit of a deceleration from last year’s growth rate of 20%, it’s still pretty darn good.  These numbers can jump around whenever Switch opens new datacenters.  The key here is that 90% of their revenue is recurring.  Switch’s gross margin came in at a rock solid 48.2% in the first half…Switch is actually, yes, profitable here.  And while its operating margin jumps around a lot because of one-time fees, the fact is that it’s a pretty good business.

However…there are some issues we need to address.  For starters, it’s got a complicated corporate structure.  Before the IPO, Switch operated as a partnership. […] The partnership has now established a standard C-Corp including a holding company, Switch Inc., which is the stock that is now trading.  Switch Ltd, the partnership, is now the sole asset of Switch Inc., which is a little troubling…The founder, Rob Roy, now has 67.7% of the voting power in Switch Inc.  Public shareholders have less than 5%.  It’s never a good thing when you have a multi-tiered ownership structure with the owners of the common stock being treated as second or third class citizens.  It’s rarely a good thing when the people who own the asset are different from the people who control it…For example, because of Switch’s transformation, the insiders who used to own the whole thing are racking up some major tax bills, so Switch is helping to pay those taxes for them.

What else is problematic?  The vast bulk of Switch’s sales, more than 95%, come from a single datacenter campus in Las Vegas…on top of that, Switch gets 38% of its sales from just 10 companies.  Ebay alone accounts for nearly 10%.  But the datacenter business tends to be pretty sticky.  I’m not that concerned.

In 1h17, Switch generated $35.3mn in net income.  To be conservative, let’s just double that for the fully 2017.  So Switch is likely to make $70.6mn.  But at $70.6mn, Switch will be growing at a 20.9% clip vs. last year’s numbers when you subtract one-timers…let’s assume that growth rate decelerates to 15% next year.  With $81.1mn in net income divided by the share count and I’m estimating that Switch could earn 28c per share this year, 32c next year…that means it’s selling for 76x earnings and 66x next year’s numbers.  Obviously that’s expensive.  However, I think I’m low-balling…next year, Switch will start selling datacenter space at its new center in Atlanta and remember every time they’ve opened a new datacenter, their sales have immediately surged higher.  It’s like a staircase.  But even if Switch has an earnings explosion next year, it might be too expensive for me.  Nvidia trades at less than 50x next year’s earnings.  But Nvidia’s earnings are growing at a 41% clip.

On the other hand, Switch is the only pure play on the growth of datacenters out there.  CoreSite, Equinix, Digital Realty are all REITs, which means they need to distribute all their income back to investors.  In other words, they can’t invest as heavily in growth.  That means Switch has scarcity value.”

Waking Up, Ep. #27 (Ask Me Anything)

Sam Harris:

“The distinction between voluntary and involuntary action is an important one.  But it’s not one that requires a belief in free will to describe.  There are things we do based on intentions that align with our goals and desires and consciously held purposes.  And there are things that we do automatically or by accident.  When looking at even my most voluntary behavior, I see no evidence of free will.

Let’s say you’re deciding whether to marry your boyfriend or not, it doesn’t matter how long you think about that.  This could be the most deliberative decision of your life.  What finally swings the balance between ‘yes’ and ‘no’ is in principle mysterious, subjectively, and is arising out of causes and conditions that you did not create.  If you love this man’s smile, you didn’t create your love for it.  You love it precisely to the degree that you do, you didn’t create his smile in the first place, you didn’t create it’s effect on you, you didn’t create that this is something you care about.  And so it is with everything else that you like or dislike about this person.  Your association with marriage, how important it is to you, how idealistic you are about it, how urgently you feel you have to enter into it, the advice you get from friends and family and its effect on you…all these dials are getting tuned by forces you can’t see, did not engineer, and cannot control.  And even your moments of apparent control, well that just arises out of background causes that you can’t inspect and which are moving you to the precise degree that they are for reasons that are inscrutable.”

Very Bad Wizards, Ep. #77 (On the Moral Nature of Nazis, Jerks, and Ethicists)

Eric Schwitzgebel:

“In my view, a jerk is somone who culpably fails to appreciate the perspectives of other people around them, treating those people as tools to be manipulated or fools to be dealt with rather than moral and epistemic peers…it’s a kind or moral ignorance and epistemic ignorance.  So you’re ignorant of what you owe to those people and you’re ignorant of what those people, when they differ from you in their opinions, what kind of validity they might have in their perspective that’s contrary to yours…I wanted to make it ‘culpable’ ignorance because I didn’t want it to be the case that babies are jerks.”

 

Back in June 2009, reeling from the financial crisis and desperate to fix its balance sheet, Barclays agreed to sell Barclays Global Investors (BGI) to BlackRock, who paid ~$13.5bn in cash and stock for BGI’s ~$1tn in assets, which included $385bn in AUM from its vaunted iShares ETF franchise.  Over the last 8 years, iShares […]

[MCEM – Monarch Cement] On Sept. 20, Ash Grove announced that it agreed to be acquired by its largest customer, CRH plc, a global producer of building materials cement with €27bn in sales and €3bn in EBITDA across 31 countries. [For background on Ash Grove, see these previous posts]. “While the final amount of the […]

The Investors Podcast (9/17/17, Small Cap Investing w/ Eric Cinnamond)

Eric Cinnamond (a veteran small-cap manager…writes a good blog ^[4])

“Back [when I started my career], the largest holders of these small cap stocks were traditional small cap value managers like the Royce Funds, Heartland, Gabelli, and when prices got out of whack, they were there to police the market almost like a market maker.  But now when I look at the top holders, I see Vanguard, Dimensional, Blackrock.  They are price insensitive investors…this is what’s going to be a significant contributor to small cap opportunities in the future.”

“Cycles vary between industries and businesses, so you got to be careful not to use a standard 5 to 10 year [when normalizing profits].  The Schiller P/E is 10 years.  Well, 10 years could include 2 upcycles and 1 downcycle, so you’re not really normalizing.  Or it could include 2 down and 1 up.  I like to customize my normalization to the particular business or industry.”

“1993 to 2000, for most of that cycle, everything I touched turned to gold, it was unbelievable.  1993 to 1998, I mean I had just graduated from college, I was running trust money, $300mn, I couldn’t believe they had given me all this money to run and I was doing well.  And then in 1996, I joined Evergreen Funds as a small cap value manager and the trend continued. […]  It was the profit cycle and I had no idea.  I was a young analyst and I thought I was a genius.  But then of course the tech bubble hit and ‘wow’ that was a humbling experience, where I went from the genius to the idiot.  That was a very difficult cycle.  I’m most proud of 1999 because I lost 8%, I don’t know if you tried you could lose 8% in 1999 but somehow I did it because I ignored tech.

Bill Miller is right in that where you start can influence how you perceive yourself and how others perceive you.  You think about the average age of an analyst or manager now, I would guess it’s 8-10 years maybe?  And what’s the length of the cycle, 9 years?  So it’s interesting, lots of the investors now running billions and billions, they’re in the same position I was in in the ’90s when I thought I could do no wrong and I was bullet proof.  And that’s kind of scary. […] The losses that could occur in this cycle with where valuations are?  If you just revert to normal valuations, you could lose half your capital in small caps.”

“Mutual Fund cash levels are at 3%.  Meanwhile, there’s a survey that showed that 80%+ of portfolio managers believe stocks are as expensive as 2000.  So, you have a huge conflict here…so, if they think stocks are overvalued and they start losing 10%-30% of their clients’ capital, I don’t know how they’re going to respond.  I think because they know stocks are expensive, they’re going to be quicker to sell.”

“It’s been so long since we had a panic that when it does happen, it’s going to be so new to so many people, even people who are experienced, they haven’t seen it in so long. […] Everyone thinks they’ll be the first one out when the cycle ends, but if you’re running a billion of small cap money and the Russell 2000 drops 30%, I have news for you.  You’re not getting out.”

“Another way I screen for stocks is I do role playing, where I’m trying to pretend I’m a relative return manager with a really big house, country club membership, etc. and running $1bn+ and then I think to myself, all right, I’ve got 10 very large consultant meetings next week – what do I not want to talk about?  That is usually one of the best ways to be a contrarian.  And right now where would you look?  I would think you’re approaching the year-end performance panic…I think you might want to start looking at energy and retail.  Those might be the two most embarrassing sectors right now for professional managers.”

“A lot of high quality value investors won’t even consider commodity companies because we’re taught in school and in all the great books that they’re bad businesses.  But if I can buy natural gas in the ground for a dollar and it costs $2 to find and develop that or if I can buy an ounce of gold in the ground fully developed for $150/ounce and it cost $300/ounce to find and develop that, those are the kinds of things I’m interested in.  I view mining businesses more from valuing a balance sheet…I want to buy the reserves for less than it costs to replace them and that has worked very well for me over time.  Commodity stocks and other cyclicals are either extremely undervalued or extremely overvalued. […] but they need to have a good balance sheet, this is the key.  You need a runway and you need to determine the appropriate runway…Tidewater had $50/share in book value and it went bankrupt.”

Mad Money w/ Jim Cramer (10/4/17)

Bill Ackman on ADP:

“Our new question for ADP is ‘why is it that ADP has lower employee productivity than all of their competitors.’  So, ADP generates $160k revenue per employee; the competitors average $224k.  When you think about ADP, it has enormous scale vs. competitors, so if anything, they should have more efficiency.”

“25% of ADP competes directly with Paychex.  Same size customer.  So what we said to ADP was ‘Paychex has 41% pre-tax profit margins.  But they’re largely an SMB company.  ADP’s SMB segment, if it had the same margins as Paychex, it would mean the rest of their business has margins of 12%.  And that makes no sense.  So, clearly there’s a big opportunity.”

“We’re the third largest investor in the company by dollars spent.  We’ve got a $2.3bn investment in the company and we own almost 9mn shares in the company so our interests are very much aligned with the other owners of the company.  Look at all the directors on the Board.  Our candidates haven’t even joined the Board yet [and they’ve] spent more money to buy ADP common stock for themselves than the entire Board has spent in the last 14 years.”

Jim Cramer on Dexcom

“We’ve talked about the benefits of Dexcom’s technology before, but in the last couple years the stock’s begun to stall.  Then, last week the darn thing fell out of the sky, plummeting more than 30% in a single session…Dexcom’s problem is pretty straightforward.  A week ago, we learned that Abbott Labs had received FDA approval for its new FreeStyle Libre Flash Glucose Monitoring System for people with both Type 1 and Type 2 Diabetes…In the old days, if you wanted to check your blood sugar levels, you had to prick yourself and draw blood with one of those finger sticks.  With Dexcom’s system, you just wear a little sensor and get readings, but you still need to prick your finger twice a day to calibrate the machine.  Abbott’s new system requires zero finger stick calibration…plus, you can leave Abbott’s sensor on your arm for 10 days, longer than Dexcom’s current system (although the same as the system the company hopes to launch later this year)…it got hit with substantial price target cuts from 6 different firms, and that’s how a stock goes from $67 to $45 in a single day.”

“First, why was this such a surprise?  Wall Street expected that Abbott would have a harder time getting FDA approval or at least that it would take longer than it did.  But with earlier than anticipated approval, Abbott has leap frogged Dexcom.  Consider that Dexcom’s new system, which isn’t even out yet, still requires that you prick your finger once a day.  However, maybe we should have seen this coming.  Abbott’s Libre system was approved in Europe 3 years ago, it’s already being used by 350k people there.  There aren’t many cases where a product works just fine in Europe but the FDA decides to reject it anyway.  And remember, this is the Trump FDA, which means it’s very pro- business and less consumer safety.  Second, was Abbott’s pricing strategy.  They decided to be far more aggressive than anyone thought.  Abbott’s system will cost $4/day, Dexcom’s will set you back between $8 and $10 per day, including the cost of hardware.  And this is before any kind of insurance reimbursement for Abbott.  Even worse for Dexcom, Abbott told us they already had 5 of the largest pharmacies lined up to sell the thing with distribution planned to start in December.  This is brutal.  Before Abbott’s system got approval, Dexcom’s system was pretty much the only player.”

“Even if Dexcom doesn’t lose tons of market share to Abbott, they’re going to have to get more promotional to keep that business, which means that the company’s excellent hardware margins are going to come down hard.”

“Dexcom’s product is actually better than Abbott’s…it’s more accurate and more reliable…[based on the] average relevant difference between the measurements from the monitors based on the readings you get from a blood test.  Abbott’s system averages a 9.7% differential…Dexcom’s is more like 7.2%, sounds small but if you have diabetes the difference can matter.  Plus, Abbott’s system can lead to a lot of false positives.  Dexcom’s new system has also been shown to be more accurate than Abbott’s with no finger sticks at all.  One reason why Abbott’s system is cheaper is because it takes a much more bare bones approach.  One of the great things about Dexcom is that unlike Abbott’s system, their device gives you real time alerts or alarms, so if you fall asleep and your blood sugar gets too low, it’ll wake you up. […] With Dexcom submitting it’s new monitoring system to the FDA in the near future, I think the company might have a chance to turn things around.  Plus, they’ve already partnered with Google to develop a cheaper, smaller system that requires no prick finger calibration, that’s expected next year.”

The Ezra Klein Show (David Remnick on journalism in the Trump era and why he hires obsessives)

David Remnick (Editor of the New Yorker)

[In 1998, when Remnick took over as editor, The New Yorker was losing money].  “With The New Yorker, the zenith of advertising was in 1967.  The New Yorker, which was invented in 1925, really as an economic thing, just rode a postwar consumerist boom with the developing middle and upper middle class and all those ads.  And the reason The New Yorker started publishing 3 part and 4 part series was not only on the literary and journalistic merit but also the need to have editorial matter running next to…this travel agent and that department store, and this started to change.  Television became bigger, all these other media.  People’s tastes changed.  So, the zenith of advertising for The New Yorker was the last ’60s.

And thereafter, there was a rather slow slide down.  It wasn’t perceptible.  The New Yorker was independent, it was owned by the Fleischmann family and it still made a profit.  The Fleischmanns began to care too late, I would say.  And the Newhouses bought it, it was kind of on the brink, red and black, and then it was distinctly in the red for a good while.  The question was how to change that.  And Tina Brown did a lot of great things to arouse interest in the magazine…and advertising continued to go down, no matter what.  It was very clear after a while to me, this is before tech even really boomed, that despite the tech advertising bubble and Red Envelope, that 1967 was not going to return. […]

We’re now in a situation where Google and Facebook own 2/3 to 3/4 of web advertising.  Retail has changed in this country, there are more options…and there are only two ways to make money in this business.  Advertising and what’s gently called consumers, meaning the readers, what they pay.  And 25 bucks for 52 issues was crazy…all you’re paying for it is 50c?  Less than one issue of the newspaper on the newstand at the time?  So the proposition now is that for a subscription, for each week you might pay what you’d pay for a small cappuccino at Starbucks.  And I really think that what we turn out on the web every day, what we publish in print and online immediately midnight Monday, is worth that at least.  And our readers have agreed and we’ve been making a handsome profit for quite some time.

The happy coincidence is that our readers want what we do when we are at our best.  The worst thing I can do, not only as a moral and journalistic proposition, is dumb the magazine down, but it would be the stupidest thing I can do as a business proposition.  That’s [not] what our readers want.  I don’t need consultants or polls to tell me that.”

“I was always the oldest guy at these early internet dinners or events, and I knew why I was invited, as the kind of editor of a ‘legacy’ media outlet, which of course the glint in the eyes of my younger brothers and sisters, was that I was soon to become like the stegosaurus itself, dead in a ditch.  And there were certain truisms I would be hearing: 1) no one would pay for any content because information wants to be free, which was a misapplication of what that phrase meant; 2) nobody would read anything on the internet of any length.  That was also an evangelical, hard truism that I was hearing all the time.  And I was wrong about a lot of things, but those two things they were wrong about.  People will pay for things that are extraordinary.  People will read things that are great.  It may not be 330mn Americans. […]

I remember once I was interviewing Philip Roth and he was deploring the state of fiction reading audiences.  This was before he became, again, a best selling author.  So he was in a kind of despairing mode.  But to cheer himself up he said, ‘if you write a novel and only 5,000 people buy it and read it, that may seem depressing, but if all 5,000 people streamed through your living room and shook your hand and said “thanks for the 4 evenings that I spent reading this novel”, you would be brought to tears with gratitude.’…Look at the readership of The New Yorker.  There’s a million now…1.25mn readers out of a country of 330mn people.  But if I imagine them as Yankee Stadiums full of people, that’s a whole lot of people being absorbed in texts that are often enigmatic, complicated, take time to read.  I am filled with gratitude.”

The basic moatiness of V/MA has been tirelessly discussed for years and is well understood, so I’ll try not to belabor the point and focus instead on some less frequently explored angles.  But I do need to establish a common denominator, starting with the 4-party model….apologies if you know all this, I’ll be quick about […]

Considering what’s at stake, we can’t dismiss the torrents of negative headlines, venemous tweets, pending AG investigations, and congressional rebukes that have justifiably buffeted Equifax on all sides, as hyperbolic grandstanding even if that’s exactly what much of it is.  In a very direct and non-hokey sense, trust – that the data lenders and employers […]

Planet Money, Ep. #647 (Hard Work Is Irrelevant)

“To get a job [at Netflix] and to keep it, you have to accomplish great things.  Here’s another slide [from Netflix’s presentation on its principles]…’We are a team, not a family.  And we are a Pro sports team, not a kid’s recreational team.’  In other words, if they don’t need you any more or if the business changes, you will be cut.  Don’t expect this to be a job for life…and Netflix lives by this philosophy, even in really good times.  Like when Netflix started streaming movies and that took off […] Netflix was growing so fast, it was about to break the internet.  Streaming online takes up a huge amount of data and Netflix just wasn’t equipped to deal with it if suddenly the entire country started streaming.  Executives figured they had less than a year to fix this problem…so the executives decide they’re going to have to hire someone else to solve this problem and they did.  They hired Amazon.  They used Amazon datacenters and Netflix’s engineers [who made streaming happen in the first place] were not happy…the honest truth was, they were toast, there wasn’t going to be a role there for them.”

JCAP (9/8/17; Constantly Reinventing Yourself)

William Bao Bean (Managing Director of Chinaccelerator talking about Chinese tech companies)

“The end game for [payments in China] is ‘what percentage of the total spending for the entire country, non-enterprise, can I capture?’  And then you apply a fee to that and that’s the revenue opportunity.  It’s huge, it’s massive, you cannot underestimate the amount of money that will be flowing through [TenPay and AliPay] because over time, all payment will go through payment platforms.  They’re connected to the banks, the government wants to keep an eye on it, but they’re not looking to get in the way. […] So, all consumer spending – from your rent to your bills to buying a car – over time, will go through these platforms.  We’ve seen in India something amazing with demonetization.  India is going on mobile payments faster than China did…WeChat added 70mn bank accounts in 3 months…but in India, it’s happening even faster.”

“Online advertising [in China] has always been controlled by a small number of players.  The large players like Baidu, unfortunately Baidu kind of missed mobile, so it’s down to Tencent and Alibaba.  Sina and Sohu are kind of niche, small players at this point and I think Sina’s mostly within the Alibaba camp at this point.  The advertising market is basically controlled by two companies.  It was not transparent until about 2 years ago when Alibaba and Tencent launched programmatic trading and you saw the average click-through rate for the average Chinese banner go from 2% to 0.15%.  Click-through rates were always historically high because they were historically all faked.  The market is much more open now.  The issue the traditional banner is that with a 0.15% click through rate, it’s just not very effective.  So, you’ve see a very quick move to KOLs [Key Opinion Leaders – influencers and bloggers] because it comes down to trust.”

“KOLs are taking from traditional display but traditional display is still huge.  Most of Alibaba’s revenue comes from search within the Taobao and Tmall platform and then Baidu has a lot of search revenue [from display].  But more and more money is going into social, native advertising (KOLs), that’s where a lot of the tech investing is going…the one company that continues to do well from the old days is Netease, they have great games and great execution and they’re actually much larger than Sina and Sohu at this point.”

“Social commerce is the norm in China whereas e-commerce is still the norm in the US and Western Europe, so I’d say the US and Western Europe are about 1.5-2 years behind China.”

“Chinese consumers are notorious for switching to new products. Something that’s massively popular one day, 8 months later could be in deep trouble.  So you need to constantly be reinventing yourself if you want to stay competitive.”

“The key trend in [online travel] is that Chinese traveling habits have moved very quickly away from group travel…FITs [frequent independent travelers] are now the rule.  The market is segmented quite heavily between luxury/independent/backpacker segments.  There are many shoppers that use travel as an excuse to go abroad and buy lots of things.  Chinese consumers represent 40% of total luxury consumption in the world, but over half of that occurs outside of China. […] many of the low cost trips are actually no-cost trips.  The Chinese basically get a free trip to Thailand in return for being made to visit stores.”

“Booking.com has an unfair advantage that they understand online marketing very well globally.  They’re very good at spending money efficiently.  Unfortunately, the rules that apply globally do not apply to China.”

“There’s 2 ways to make money.  There’s entertainment – games and then there’s commerce.  Advertising leads to entertainment and to commerce, so we look at advertising as a subset of the other two.”

“Initial Coin Offerings, it’s a classic bubble.  Usually you have people investing large amounts of money in products that have few or no users and little or no revenue…ICOs are even worse than that.  You’ve got large amounts of money being invested in something where there is no product yet.  It’s a white paper.  And the product will only be released after they raise the money…so you’re going to have highly capitalized companies that don’t have product/market fit yet, and the value of these coins is based on the value of the platforms or services that they’re building.”

Consuelo Mack / Wealth Track (5/4/17; Investor David Winters Raises Alarm About The Flood of Money Pouring Into Index Funds)

Consuelo Mack:

“According to the Wall Street Journal, in 2016 82% of new retail investments coming through financial advisors, more than $400bn, went into index funds and ETFs.  And it appears the lion’s share has gone to Vanguard.  Over the last 3 calendar years, Vanguard has received 8.5x as much money as the rest of the mutual fund industry’s 4,000+ other firms.  $820bn for Vanguard vs. $97bn for its competitors.  By one estimate, Vanguard traders put as much as $2bn / day into stocks and their index funds, a huge portion of which goes into the 5 stocks with the largest market caps.  5 tech stocks – AMZN, MSFT, GOOGL, AAPL, FB – have dominated recently and at one point, accounted for 53% of the S&P 500’s YTD gain.”

“The fans of index funds also stress the fact that the performance of index funds has been better…95% of active managers underperformed their benchmark indices over the last 15 years.”

David Winters:

“What’s happened over time is that the fee [on index funds and ETFs] looks low, but they don’t look at the total costs.  And the costs are that there’s dilution from executive compensation plans that have in 2015 are about 2.5% on average for the S&P 500.  And then the other big expense is that stock buybacks have become increasingly used to offset these executive comp plans.  So another 1.6% of the expense of the S&P 500 that’s not apparent is buyback costs…so this whole idea that people have that ETFs and index funds are cheap, they’re actually very expensive and the expenses are ballooning over time […] if you take 4.1% x the market cap of the S&P 500, it’s over $800bn/year.”

“What are the look through expenses of [Wintergreen’s] companies?  It was 3.17% in 2015.  And index fund is 4.2%…and we can own securities that are trading at a fraction of what they’re worth as opposed to owning securities that everyone owns for the momentum.”

[But Wintergreen also charges a 1.95% management fee… 🤔]

“The fabulous growth stocks have dominated the returns of the market, so these index funds just have to keep buying more and more of them…so instead of diversification, you end up with concentration.”

“We really like BAT.  It’s our largest position.  They’re doing this transaction to hopefully take total control of the Reynolds American Tobacco Company.  BAT is the most global tobacco company, it’s very well run.  The CEO is first rate.  The company generates lots of cash, it generates money all over the world.  And you get paid to wait and they grow the business.”

Consuelo Mack / Wealth Track (9/8/17; Trennert & Zweig)

Jason Zweig:

(on the shrinking number of public companies)

“It almost compels institutional investors to invest ever more in private equity, which of course drives up prices and drives down future returns.  We’ve already seen the historical advantage of private equity as an asset class shrinking and I would expect that all of these people are chasing performance they probably won’t catch. […] I think for fund managers who invest in very small stocks, their job is probably getting harder than ever.  We had roughly 7,500 companies 20 years ago, now we’ve got roughly half that.  So you have larger and larger amounts of money chasing fewer and fewer companies.”

Jason Trennert:

“10 years ago, 80% of the market share of trading in NYSE-listed stocks happened on the NYSE.  Now, it’s only 20%.  There’s over 30 other sources of liquidity or exchanges out there.  When you see something like the flash crash, what was disconcerting was how few people knew what the source of the problem was.  In the old days, you’d go right to the exchange and you’d have a good idea.”

Waking Up, Ep. #34 (The Light of the Mind)

[Discussing consciousness, etc.]

Sam Harris:

“You have this distinction between understanding function and understanding the fact that experience exists…You have something like vision.  We can talk about the transduction of light energy into neurochemical events and in the mapping of the visual field onto the relevant parts of the visual cortex, and this is very complicated but it’s not, in principle, obscure.  The fact that it’s ‘like something to see’, however, remains totally mysterious no matter how much of this mapping you do.  If you built a robot that could do all the things we can, in no point in refining its mechanism would we have reason to believe that it’s now conscious, even if it passes the Turing Test […] and yet, it seems to me that we still won’t know whether these machines are actually conscious unless we’ve understood how consciousness arises in the first place.”

David Chalmers:

“‘Is the universe a simulation?’  [This idea’s] been getting a lot of currency recently…Nick Bostrom’s put forth this statistical line of reasoning that suggests ‘maybe we’re in a simulation because there’s going to be a lot of simulations developed in the history of the universe through simulation technology.  Maybe the simulated beings will outnumber the simulated ones.  Maybe we’re one of them.’  This is very reminiscent of Renee Descartes’ old experiment that maybe we’re being fooled by an evil genius into thinking all this stuff exists when it doesn’t.  The standard line is that if we’re in a simulation such as the matrix, it’s all an illusion […] My take on this is that that’s actually the wrong way to think about the simulation hypothesis.  If we’re in a simulation, it’s not that there’re no tables or chairs or trees, it’s rather that they exist in a somewhat different form than what we at first thought.  There’s a level of computation beneath what we take to be physical reality.”

“Consciousness can’t be explained in terms of standard physical processes. […] Standard neuroscience addresses the easy problems of behavior pretty well but doesn’t really give us a grip on the hard problem of experience.  The basic worry is that physics is all classed in terms of mathematical structure and dynamics, which is perfectly well suited for explaining things like behavior, but will always leave a gap to explaining ‘why is there consciousness’ because [consciousness] is not a problem about that structure or dynamic.  If you grant the argument that consciousness can’t be explained in terms of ordinary underlying physical ontology, then you have to add something to the picture, and either you add something separate to the physical processes (which is a form of dualism…we need new properties in our picture besides space and time, mass and charge)…the other possibility is that we enrich physics at a bottom level with consciousness, maybe as part of the intrinsic character of space and time and mass.  They’re all fairly radical possibilities, I concede that.”

“One line [of argument] that I’m attracted to is if you upgrade your brain a bit at a time, one neuron replaced by a silicon ship at a time and stay awake throughout, then maybe there’s a case that consciousness is going to be preserved by this process and you’ll end up with consciousness at the other end.”