Nostalgia

 I've noticed this around investments, but it's also a general observation that nostalgia is a powerful feeling.

People like me, in their 30's and even older, long for what they liked in childhood. Most people listen to music they listened to in middle school and high school. I like to eat Asian foods that I ate in childhood. I still really enjoy Pokemon and Magic the Gathering games that I learned when I was a young child.

From the investment context, I've noticed that video game companies like ATVI and EA are somehow still selling games like COD, Rockband, and the sports2k games. People still play Counter Strike and Smash, even though those are games that are 20 years old. Disney is another great example that bought Lucas Films and I've talked to people who all agree that the new Star Wars films are not up to old standard, but we watch them anyway probably because of nostalgia. 

I used to think that it is fine to neglect young people from an investment context because most people accumulate wealth in their 30's through 60's. But to truly think long term, I think capturing the mindshare of young people. An example is how the NBA streamed games for free in China for decades and now the NBA is super popular in China because it was one of the few things you could watch in China growing up. Disney captures the mindshare of children, and parents bring their kids to Disney World and continue the cycle. A company like Allen Edmonds seems to be having trouble marketing to young people, partially because formality is going out of style, but also because of their image. LVMH on the other hand, has figured out ways to attract young buyers and doesn't seem to going out of style. 

And has a corollary, many old people are stuck in their ways. I don't change my credit card even though I should. I barely want to call Spectrum to lower my cable bill because I'm too lazy to threaten leaving and deal with the hassel. There are still many older women calling in to buy things on QVC and the Home Shopping Network.  

Immunology

 I recently read An Elegant Defense by Matt Richtel. Richtel is a journalist who suffered some version of auto-immune syndrome and went on a quest to learn more about it. I have a few interesting takeaways.

First is that we have come so far in understanding the immune system in the past 70 years. Immunology was basically not understood at all 70 years ago and scientists barely knew what the thymus or bone marrow did for the body. Now, we know about T cells and B cells, and macrophages, interleukins, cytokins, etc. And I'm hopeful about the next 70 years - I would not be surprised if humans cured the majority of forms of cancer within my lifetime. 

Second is the role of stress and sleep on the immune system. Stress is really terrible. It causes the body to go into a fight or flight response which keeps us awake and alert, enlarges our blood vessels, and pulls resources away from digestion, and our immune systems. It also prevents us from going to sleep, which has huge restorative benefits. A study that drew blood from West Point students during finals and during another time showed much lower immune system markers during times of stress - and was particularly lower for students who had signs of loneliness. 

Third was the complexity involved in study something in the body. One example of a study required a scientist to remove the immune system from mice (which is a multi-week process), inject it with cells from a human, and watch the interaction with cancerous cells. It was also fascinating to learn about Dr. Fauci's work over the years and learn why he is the expert on immunology. It takes the work of many scientists, tinkering with one small thing after another. For example, one immunologist developed an interesting technique to measure the number of a type of immune cells (it is akin to figuring out how to measure cholesterol or blood pressure). It opened a whole new set of doors and facilitated other breakthroughs. The book also mentioned the AIDS (which is an immunodeficiency syndrome) epidemic and how immunology has helped us understand and create treatments for AIDS. Given the rate of progress, I'd hope humans can find a cure of AIDS within my lifetime as well. 

The last thing I'll mention is that antibiotics (and chemotherapy for that matter) is like a napalm that destroys multiple types of bacteria (or cells) in the body. In the future, immunologists hope to create much more targeted forms of antibodies (somewhat like vaccines, but more like targeted antibodies) that can cure infection and viruses in a better way. Antibiotics also have an element of making bacteria more powerful since they can evolve in order to be resistant to antibiotics, but I think for the most part that we're developing a better understanding faster than bacteria can evolve (but who knows). Thus, antibiotics should not be taken frequently, since there is lots of good bacteria in your body that needs to be replaced. There are also studies around allergies and other conditions like Celiac disease, which immunologists believe is developed by not having enough interaction with bacteria during childhood. Inflammation and allergies are an overreaction by the immune system - it detects a threat and expends resources to fight a foreign substance that isn't actually toxic. Thus, there is this new wave of understanding about the microbiome and how important your gut is (since most of your body's foreign bacteria lives in your gut - because you injest lots of bacteria). Chemotherapy is similar to antibiotics since it attacks all rapid-multiplying cells, which include hair but more importantly other essential cells in the body. It almost seems like a very primitive treatment since it puts your body in a semi-alive state and hopes that it kills the cancer and doesn't kill the patient.  

To summarize, the only real action steps are to sleep more, reduce stress, try not to take antibiotics so often, and root for the immunologists that are making pretty big breakthroughs in health!

Automation

Some of the best businesses have been able to replace labor or make existing labor much more efficient. 

Booking.com replaced OTA's. SIG replaced pit traders. The best car companies invest crazy amounts into robots, as does Amazon. Machine learning and self-driving cars seem like crazy game-changing technology because of how it can automate large tasks away. 

The supply-chain issue after Covid has helped me understand how much of the world is about moving atoms and not bits. Most of our population is employed and hard at work, and the world is moving to try and make people more productive. There are builders, electrical technicians, hotel staff, salespeople for every product, train conductors, scientists, miners, cashiers, truck drivers, delivery people, designers, artists, chefs, etc. 

Over time, the companies that help automate tasks away will do well, and because it is a relative game, companies need to do this better than other companies can. This is why investing is so hard, because capital goes towards the best use and things improve and others catch on and a company may press a hard advantage for some time, but competitors will come. 

That said, I'm not sure how I feel about companies that buyback stock. I used to think it seems like a great use of capital, but Mohnish said something about Tencent and Amazon - that they are the only 2 tech companies that like to keep a net zero cash balance. They are furiously investing for the future, and that's the way it should be. 

Well, this has been more of a rant than a post about automation so perhaps I'll just end here.  

Health Levers

Levers are few things that we have control over that affect a particular outcome. Here I'm thinking about health and I mentioned the following levers an earlier post.   

-Eat

-Sleep

-Stress

-Community

-Exercise

I believe these are the most important levers that have an effect on quality of life as measured by:

-Mental wellbeing (management of stress, anxiety but also excitement and positive mood)

-Lifespan (length of life)

-Healthspan (the area under of the curve of how we feel x how long we live)

-Mobility (lack of back/neck pain, ease of moving around in old age)

From here, there are a whole list of tactics to try an improve on all of these areas. 

-Not leaving sweets and beer around the house is a better strategy than "willpower."

-Fasting reduces caloric consumption (rules of no eating before noon and after 8pm)

-Eye mask/blackout curtains and ear plugs for sleep

-Leaving your phone outside of the bedroom (don't let it be the last/first thing you see between sleep)

-Easing into exercise (2min the first day and building up verrrrrry slowly over time helps habit formation)

-Meditation (one I do not do yet at the moment)

-Deadhang, up dog and down dog, camel and lunge/warrior are some of the best poses for mobility (spine, chest, hips are just big parts of your body)

-DL, Squat, Bench/push ress, Row are the best lifts for strength (body can squat, lunge, press, pull, walk and twist - and these work out 4 out of 6)

There's also a wholistic nature to health. Stress manifests itself in various ways such as overeating, abusing alcohol, stiffness in lower back or lack of sleep.

Investment Mental Models

 I supposed this whole blog is largely a series of mental models that I've built up over time. But here I'll list a bunch of them that relate to investing without describing them too much. 

1. Under earning or passes off savings to the customers (COST, DPZ)

    b. Monopolies that have not yet flexed their pricing powers

2. Spawning with an existing strategy and have a large runway - or what Charlie might say riding a wave (MCO/SPGI in corp debt, AMZN in ecom and cloud)

3a. Spawning different businesses (a lot of the big tech companies, IAC)

    b. A distributor that can add new lines of business 

4. Low cost producer (HIFS, PGR/Geico, Saudi Aramco)

5. Provides such a good experience that it grows TAM (UBER, DASH, ABNB, VMEO, potentially ANGI, online gambling)

6. Rollup - need to be careful that you aren't buying lemons/ better to buy from incentivized sellers (CSU.TO, RICK)

7. Ecosystem control (TCEHY, BABA, AMZN)

8. Marketplace since it reduces competition (ETSY, CPRT, FB)  

 

Health is Wealth

 As I get older, I am appreciating the effects of developing healthy habits. After doing cursory reading, it seems to me like a person who eats well, sleeps well, has a good community around them and controls stress can outlive someone by quite margin. I would throw out a guess that someone with 1 sigma of better of habits in all 4 departments than avg (in the US) can outlive someone who is 1 sigma worse by 10-20 years. 

Another way I see it is that today is the youngest I will ever be. And therefore my body and health function will necessarily decrease over time, and more noticeably in my 40's and 50's, and the 2nd derivative will also increase over time. And as this happens, my health will be of greater and greater importance to me. People with declining health would nearly given anything for better functionality and have very little use for wealth.

Hopefully, I can take away a few things from this which is 1. to spend a little more time with my parents, and 2. to pay more attention to healthier habits. I've usually done fine in the eating department though I could sleep better and give more attention to stress management and the community around me. In terms of stress and work, if I can decrease stress and add a couple of years of both lifespan and healthspan, the couple years of compounding will also add to wealth, so there there's not even a whole lot of sacrifice.       

Tencent

I own shares of Tencent and think it looks attractive at $80. At the moment, Tencent is one of the best companies in the world. An average user of Wechat spends more time on the app than an avg. user of Facebook, Snapchat, Twitter, Spotify, etc. combined. The Company monetizes through Value Added Services which in large part includes games and ads. It has very high returns on capital and essentially controls distribution of apps and games in China. Most of excess capital goes towards investments, which have performed incredibly well over the past 5 yrs ~20% pa. Gaming, social media and cloud all have long runways for growth and China's GDP is still much lower than US GDP. China also has some tailwind of users becoming more digital (though less than the US) though does have some demographic headwinds with an aging population. 

In terms of competition, Tencent somewhat competes with BABA in cloud and ecommerce, Bytedance in advertising, and has other real competition in games. But really, Tencent has stronghold in the Chinese ecosystem and it seems incredibly tough for another app or company to displace it. Really, we would need to imagine FB's AR investments would have to take off and the metaverse to come to fruition. And even if that's the case, it'd be hard to imagine Tencent didn't have a place in that world. In gaming, Tencent owns a significant portion of game studios, and has several investments in "competitors" like Sea Limited, Epic Games, Riot Games, etc. 

Tencent trades at $770B market cap and generated 20B of net income last year and has been growing 30% pa. It also has ~$200B of investments. With the tailwinds of China GDP, less stigma over spending on games, growth of ecommerce and digital payments, the movement towards cloud, Tencent clearly has a bright future. At 22x 21E ex investments, Tencent seems like incredible value and I can easily see it being worth 4x in a decade. 

One of the risks is China's declining population which should eventually drag on China's GDP. But China is still starting from a lower base and I have to think China's GDP outpaces US GDP given China should have 2-3x the population of the US in 20 yrs. 

As for CCP risk, I would think China wants its technology companies to thrive.