Podcast Blurbs [Chinese internet, Consciousness, Passive investing]

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.”