SharperDingaan

Good point about the share of the worlds best talent. Will the pool of the world's best talent grow much faster than world population (perhaps via expanded and cheap online education)? I have a question: what percentage of today's best talent are currently impoverished and underutilized, not making it into engineering programs? When I was at Microsoft, I kept bumping into Indian engineers and it seemed as though not one of them grew up dirt poor, even though so much of the country is dirt poor. Depending on the source, there are 2B+ people world-wide who are 'unbanked'. The target of most free solar panels, free computers, free water-bores, free high-speed internet, etc. The close follow-up being on-line health, drone delivery of medicine in the field, and diminished spread of disease. Street smarts leveraged by technology, doing things in the places that really matter. The harder sciences (medicine, engineering, etc) have always been the preserve of the rich - because only they could afford the cost of the training; but it just doesn't produce enough of them. The industrialist's solution was to find the best of those who couldn't afford it, send them to school (Oxford, Mining Schools), apprentice them under their best men in the field, and give them free reign in the running of their various enterprises around the globe. The technologist's solution is essentially the same, but with the addition of technology to leverage the output. Find the tadpole in that huge ocean, and with minimal competition - you can quickly grow it into a whale. And at 2B+ people, there are going to be quite a few tadpoles - and a % of them are going to go on to become Noble Prize winners. No different to looking at space, and recognizing that there MUST BE life 'out there', simply because there are so many planets. And kind of telling that the founder of SpaceX, is a man that straddles both worlds. https://en.wikipedia.org/wiki/Elon_Musk SD

Assume higher spending in the 65+ brackets. If only because boomers (in quantity) fundamentally change everything they touch. Assume higher spending in the 75+ brackets, AND more brackets. The US is morbidly obese, and has been for a long time; if you are not dead from obesity/complications by age 80, odds are that you're probably healthier, more apt to spend, and have a lot miles left on the dial :) Don't assume the same market share of the worlds best creatives going forward. US market share has been materially inflated ever since the end of WWII - simply because opportunities/living conditions were so much better than everywhere else, and the flow of information was less restricted (former communist blocks). Not so much anymore; and often it's better to work in the US - but NOT actually live there (outsourced talent). SD

This is 2020. If you build and design an atomic bomb, you are also responsible for the radiation that it causes. If you produce dirty oil, you are also responsible for the climate damage in its production and use. We can no longer claim that we just make the tools (booze, guns, cigarettes, sugar, plastics, etc) - and are not responsible for how they are used. It's called Corporate Social Responsibility (reputation), and it particularly applies to network business models (disruptive social media, disruptive block chain, etc). Robin Hood is just one more example, in today's wild west. Robin Hood BK's tomorrow, few will care. But the more of this sh1te that accumulates, the more disruptive it becomes, and the less able the economy is to deal with it (Great Depression), the quicker we get to tippling point - and widespread change. In the US, it produced the Securities Act of 1933, and the Glass Steagall Act of 1933. Enjoy the party while it lasts folks, 'cause it's coming to an end. And maybe a lot sooner than many had hoped. SD

Lot of money is just being diverted. What was going to vacation abroad, now going into house upgrades instead. Tough if you're in the hospitality biz, life-saver if you're in construction. Lot of executable vacation planning, going into longer, and bucket list trips. Travel primarily outside of NA. 3-month vs 6-week trip, to the exotic locales, for about the same price - and without the million tourists. Parts of Europe (Greece, Spain, Portugal), are now strategically paying tourists to travel there, because that's their only business. To compete against that, NA is going to have to pay its population to travel as well - Canada and the US included. https://www.usatoday.com/story/travel/news/2020/06/13/despite-risks-greek-islands-keen-reopen-tourists/3182764001/ Could be a great winter in vacation land! SD

20-year olds are not teens, they are almost adults. In a great many places, teens are forcibly drafted into the military at 18, and subject to a range of various abuses. No bubble wrap. Different places, different approaches, but the aim is the same - grow up. Rapidly. Shortly after their 16th birthdays, each of our nephews was shot up with every vaccine known to man, and spent a fully immersed week volunteering in an african refugee camp. Sleep/eat/shit on site, see the disease, smell the dying, hear the crying, and see the predatory praying on the hopeless. They both came back horrified - but each has quietly thanked us multiple times for the experience. You don't know what you have, until you don't. It also makes you very difficult to bully, and bend to social pressure. SD

It has long been recognized that the older you get, the more 'resistant' to change you become. Applied to investing; invest in equities during your 30's to 40's when you're 'flexible', and FI during your '50's through 70's when 'judgement' is typically more valuable. Often expressed as an 80/20 equity allocation at 30, that progressively rebalances to 20/80 by 80. However, 'resistance' is NOT chronological , it is driven by life event. Death of parent/child, divorce, windfall, etc. Best example is retiring boomers who made their stash early, got rid of the kids, and have 5-10 years until the 'traditional' retirement age of 65-70. They now do business 'for fun', they come in as professionally trained shirt-sleeve C-Suite, and they buy out existing businesses to expand/restructure/resell. Small is beautiful, innovation is the name of the game, and the security is now the entire business. They are investing like they were in their mid-30's - but this time with both brains and experience. Little resistance to change, healthy lifestyles, and little reason not to live 'well' until 90+ The 'chains' are important for structure, but it is to the investor to maintain. If you never throw anything away, you're called a 'hoarder', and it is regarded as a mild mental disorder. Same thing applies here. SD

Not really. For the few skilled labourers (oil fields, coders, etc), there were multiple offers at higher wages - as there weren't enough of them. However, there were just a great many MORE people, that lacked the required skills (structural unemployment) - and were out of work as a result. High inflation (that everyone pays for) and high unemployment (that the unskilled pay for) at the same time. It was also a time when the more time it took to build a project, and the more it cost, the better off you were - as a replacement asset couldn't be built for anything close to the current historic cost. As long as the asset worked, it could be sold at a material gain - even if it was an utter POS. And many were! SD

There is only inflation when labour and services are at full capacity, should Wuhan be short of the skilled labour required - the job is just outsourced to somewhere else. SD

Complain less .... and take advantage. The big money will be made on the way down - when these new patsy's can't make their margin calls ;D SD

Doubt is just uncertainty. Reduce the number of decision points (simplify), &/or change the probabilities, and the cone of uncertainty changes - but typically, not the decision to fight or flee. Therefore, either get comfortable with ‘good enough’ analysis (WEB approach), or comfortable with probability tail misinterpretation (options). The more time, the wider a STATIC cone of uncertainty becomes. Whereas the width of the cone on a DYNAMIC cone of uncertainty, could actually be shrinking. Dynamic vs static? Same situation, assessed one quarter later, under updated probabilities. If the situation is ‘de-risking’, the width of the cone is shrinking. Most value investors ‘kind-of’ get this – but not really. Average down, and you are doing this. Swing trade, and you are doing this. Invest and you are doing this. Speculate short-term, and you are NOT doing this - you have placed a casino bet on the outcome of the STATIC cone. Applied to our bungee jumpers? The STATIC cone of uncertainty is not favourable. Keep the same probabilistic outcome, but simplify by omitting the rare negative event (crocodile snap), and promoting probability tail misinterpretation. You have not misrepresented, as the probabilistic outcome remains as it was – not favourable …. Lot like Robin Hood, or USO? Engage the DYNAMIC cone of uncertainty. Have your beautiful and handsome repeatedly make the jump, and circulate amongst the crowd – head dripping. Simplify; accentuate ‘safeness’ via repeat observation, downplay the negative. The jumpers expected payoff (fortune and glory) became net positive, and the more successes (increasing favourable probability) the more positive. Long line-up of punters putting up their USD 200, and getting longer. Our crocodile snaps, and the bungee jump collapses – for today. The crowd just buys the cords, and is back in business tomorrow; new punters, short memory …. Lot like US o/g shale companies, and CJ?. Applied to the crowd? The African sun is hot, beer needs to stay cold, and that is best done when well below the water surface. Good beer, and good entertainment, dull the senses - and the inebriated are a lot slower than human fly’s. African roulette. SD.

The Victoria Falls bridge spans the Zambezi River, just downstream of the Victoria Falls. The bridge is a favourite of bungee jumpers, paying USD 200/pop, to jump off the centre of the bridge, dipping their head at the apex of the jump in the flowing Zambezi River, about 420 feet below. Iconic location, iconic river, once-in-a-lifetime opportunity! Doubt-Avoidance would say this is a dumb idea, and don't do it - as the bungee cord could break, you could do yourself an injury, etc. Bungee jumping has been around for a while now, lots of people have done it without issue, the Vic Falls bungee equipment is state-of-the-art, and well over 100 people+ jump from this bridge every day. Kids through to the 400lb bricks suffer no injuries, and the payoff is the adrenaline rush and fame/claps of the crowd watching below. But when every observed jump is a success, and there have been lots of jumps, doubt-avoidance recedes. Where the jumpers are dipping their heads, is a crocodile larder. Dead wildlife that came over the Falls, stuffed underwater beneath tree roots, for later retrieval - when hungry. Same as with fly fisherman attempting to get a bite, fishing with people will eventually do the same thing. Doubt-avoidance does not correctly factor probability. The clapping after every jump IS celebratory - but it is to celebrate 'no-bite', not 'hail the hero'. Doubt-avoidance is not good at live feedback. After the jump, a % (usually small) of the bungee jumpers will customarily share a beer with the clappers. Most throw-up when they learn there's a pool on how many dips until a 'near miss', and a large payout on a solid snap. 'African roulette'. SD

Luxury Apartments in Paris (as in much of Europe) are an interesting take. Fractional ownership for a 4-5 week period. Airbnb is essentially just a 'downmarket' imitation of long standing existing practice. https://parispropertygroup.com/apartments-for-sale-in-paris-france/ Invitation only, almost always just the major cities (Paris, Berlin, Milan, Barcelona, etc.), fractional ownerships limited to the summer months (sold to Americans). The long termers 'summer' in the country, to escape the tourists. In a Washington DC, the fractional ownerships would target the diplomatic core, and come with 'built-in' benefits. SD

You might want to keep in mind that the far-sighted downsizing McMansion DOES NOT WANT the 800K-1.2M house. They want the 1/8 - 1/4 floor apartment in a brand-new building, with multiple rooms, and close to the amenities. 10-20 YEARS of minimal upkeep on the new build, and one of the rooms convertible into a live-in - when you would otherwise be going to a home. In most places, the $1M apartment is going to be a very nice place - and its size will ensure that it is 'worth' multiples of that, 10-15 years out. When the family is making decisions on you. SD

A minority stake is worth less for a reason, and the shareholder is comped for it via a higher yield. If shareholders don't like the arrangement, they are free to sell. If shareholders didn't understand, or didn't sell - they accept the behavior. Hence if a shareholder does not do his/her DD, its on them. A great many value investors enter minority stakes in private partnerships, thinking they are equals. They aren't. In a takeout, for a company valued at $10/share. ALL the shareholders will be offered the take-out premium (assume 35%) or a price of 13.50/share, but the 49.9% minority will have to accept a minority discount (assume 30%) to sell their shares. 'Cause the fact is, they are a liability, and for control purposes their 49.9% isn't required - so they get a very reluctant and begrudging bid of just $9.45 (70% x $13.50). The takeout was executed because the majority shareholder signed a lock-up agreement. Hence, to address the 'fairness' issue, the majority shareholder will often privately offer the minority a 16% premium, or a price of $11.00. Accept the takeout, and the minority shareholders make $49.99/100 shares, the majority shareholder makes $125/100 shares (175-50); but often more, depending on the terms of the lock-up. Perceived as 'unfair', when actually it is 'more than fair'. Point is .... most often it is the greed of the actor staring back at you in the mirror. The company executing the take out, may also be a separate entity, 100% owned by the majority interest. SD

It is far worse in the private market, and the favoured vehicle is debt/equity conversion. The really skillful are able to do it at zero net cost. SD

Execs will always get the Grade-A space as it's non-taxable comp. but the cost of the 'extras' comes out of the C-Suite bonus pool. Hence there's incentive to keep the total cost low, relative to the size of the bonus pool - which can only happen if the pool is stupid big (I-Banks, etc). Hence in a good years (most of the time), it's not an issue; in bad times the exec + the space are fat. Long ago I was reminded by a former french madam/financial advisor, that a great many of the young and beautiful/handsome in this population - are playing a different game. Todays mistress, tomorrows trophy wife, along with a prenup. Todays boytoy, under a 'lease' arrangement with generous termination. The buff bods, expensive handbags/heels, and Armani suits - are business tools. Sadly she has passed away now, but it put a whole new spin on the Les Miserables, 'Master of the House' SD

A high-tech/new age company locates in a city, because that's where the labour is. If you're targeting the talented 'hip labour pool', you have to be where they want to live, and pay up - as the cost of doing business. California, Boston or Toronto for tech; NYC, Chicago, SF, or Toronto for finance; LA, Toronto, or Vancouver for entertainment production. Houston, or Calgary for o/g. But ... everyone gets old and your time as the 'hip' ... is a limited term engagement. You lived in the city to find a mate, once you find one ... you live in the 'burbs if you want to raise a family. You split, the kids grow up, and you move back to the city for the amenities. Grade-B space in the 'burbs of a major city targets this pool, and the value-add to both employer/employee is low-hanging fruit. The functional comparative is Grade-A space in a 2nd Tier city (Detroit). For most companies, 1/2 to 2/3 of the white-collar workforce really doesn't 'need' to be in downtown Grade-A space - it's primarily operating leverage on the fixed cost of the space, prestige as part of the comp, and inertia. It worked, because like an airline ... the more people you could jam in the space (or aircraft), the lower the cost/seat - which social distancing no longer allows. Move that workforce to Grade-B space and you both save material $ and RAISE the comp value of Grade-A seat prestige. The truly evil will also change industry comp incentives within the Grade-A space - by paying most of the bonus in 'prestige', via society page advertising (eg: Harrod's high-end christmas gift basket) - and NOT in money. 'Cause .... if you live/work in Manhattan, you must already be independently wealthy - so why are we just giving more money to millionaires? when the prestige of 'social rank' is more valuable? And as the shareholders who gave you the opportunity, it elevates our 'social rank' as well. 'White-wall' investment banking firms did very well for a reason - and their approach can be copied ;) In the words of Gordon Gekko, Greed is good!, Greed works! https://www.americanrhetoric.com/MovieSpeeches/moviespeechwallstreet.html And it is coming to the office space near you. SD

In many firms it is common to return to work on January 02; to find multiple trailers in your yard - full of items your firm did not order. They are there because the sellers agent cleared out their warehouse as at midnight Dec-31, in order to inflate the prior years sales figures and their 'gateway' driven bonus (total YTD volume x higher rate). January 02, the selling agent 'bribes' the firms buyer to take the delivery and not return it - via steep price discounts; and the the firms treasurer to finance the purchase - via a deep discount for early payment. Press the agent and you'll be told that he/she is just 'priming the pump' - reciprocal selling. Entirely incentive driven, but essentially a wash over the full year. SD

The conversation just highlights that different functions, at different levels, are impacted differently. It really comes down to an across-the-board 're-set' of expectations, throughout the company. Some will be able to handle the change, some will not. White collar 'core hours' (CST, PST, GMT, EST, etc) are pretty meaningless, when there are no borders. The 'standard' becomes 'next working day' - and that is NOT between 9-5 'next working day'. You pay for quality task completion by day X, time Y - how it's done is to the employee. Hence the communication at weird times of day; but same outcome, productivity, etc. Just different execution. Lean manufacturing has long impacted blue collar employment. WFH is just the early stages of lean manufacturing being applied to white collar employment. Good or bad, depending upon how individuals position themselves. Our block-chain partnership recently let our office space 'go' - as it just wasn't worth it. It is far more effective/efficient, for us to rent space as we need - and meet up at extended lunches within the GTA. Builds the collective EQ, does the social thing, keeps conversation focused; but requires discipline. When we need to pitch a client, rent a room close by and have them walk over. Underlines the cultural difference, and acceptable because this is 2020 - not last century, and we're tech. SD

Office buildings are still required - it's just much less NYC Grade-A space, much more Detroit Grade-B space, and much less TOTAL space. We still socialize, work the office-cooler, etc - but in the Detroits, not NYC. NYC/London/Paris etc still have the elites - just not as many of them (posers failed the cut). BUT - we no longer need the cast of thousands anymore. Everyone is their own personal business, and the firm paying you is just ONE OF MANY - and a temporary pay cheque SD

He is referring to the different time horizons. In the short-term QE is stimulative, but over the medium to long term - QE tends to be destructive. Markets have a short-term orientation, and view QE stimulus as permanent (consistent with the view); capital flow creates an asset bubble, market players leverage against the higher valuation. The QE is subsequently unwound, the asset bubble bursts, and the debt is cleared via bankruptcy. The issue is that too much bankruptcy, too quickly, tends to trigger a collapse. Basically - too much QE, for too long, is toxic. A key lesson from the Great Depression - is that nations need sustained, unlimited spending to get out of it. World war type spending that BOTH stimulates the economies of the entire world, AND destroys the entire capital stock of the losing nations. The subsequent rebuilding, and shortage of labour, typically stimulating the global economy for a decade plus. We have the spending (global cumulative QE spend), but not the turnover in capital stock (new infrastructure replacing old). Unpredictable obsolescence write-offs triggering bubble collapses (RE, vehicle manufacturing, o/g, national grid, health-care, etc). Too much unskilled labour, worsened by demographics, geography, and automation. Cheap labour is readily outsourced (migrant labour planting/picking crops, extraction industry camps, etc). High volume, standardized product, is better achieved via automation (machines, call centres, etc.). In war time these people are the cannon fodder, that do the dying. In peace time where do those millions of obsolete go? what do they collectively do in civil society? how are they supposed to buy anything with no income? In the US, this is Trumps 'base'; in the UK, they were enough to produce 'Brexit'. Unpredictable changes in civil society, triggering bubble collapses. Unfit capital markets. Any new analyst entering capital markets since 2006, has had very limited experience with anything but QE. 3 successive generations (average 5-year career life) of analysts, all mutually reinforcing each other (levels within the organization), and all very fragile to anything but continuing QE. And this is before the automation of smart-contracts, and AI. Unpredictable reactions to material structural change, and greater volatility, triggering bubble collapses. Of course to some - Nero fiddling while Rome burns, is an opportunity! In Taleb speak, this has all the makings of a great asymmetric bet on fragility failures (bubble bursts) - as long as the counter-party can make good on their obligations. Problem is, keeping the money - while the world around you is burning. SD.

Keep in mind that manufacturers need to move product, and much of their downstream customer base is cash constrained at present. Manufacturers will be dumping old inventory (via credits to the garage/service provider), to bring customers back in. In most uses, synthetics have the longer life, a wider temperature range of use, and cost less/mile driven. It is more expensive than regular oil for a reason; but in today's economy, a manufacturer will begrudgingly eat the difference to move old product. Use the opportunity to upgrade. Does it really matter? If it seldom gets below -10C where you live, and the driving is primarily commuting - probably not. If -35C is not unusual, or the vehicle often has to haul heavy loads - it matters. SD

The expectation is that over the long term, the business will continue in its current form. For most businesses, this is just not a practical expectation, as businesses evolve over time (different product lines, market shares, etc.). Its more relevant in the extractive industries (mining, o/g, etc), as there is a minimum level of annual exploration/development/drilling that must be done to maintain production at current levels. Complicated by rapid obsolescence/revaluation as the MV of the resource moves up/down. SD

In the accounting world, depreciation is NOT just a expense recognizing use of the asset. Per the 'going concern' assumption - it is ALSO the amount for the period, that should have been put aside to REPLACE the asset as it wore out. Ideally, the depreciation method chosen, reflecting the expected use of the asset over time. ROIC is only meaningful when the IC is approximately MV (assets are revalued at MTM every period). Buy an apartment building, and you control land AND a structure. The structure depreciates, &/or becomes obsolete. and is demolished, Replaced with a shiny new structure reflecting highest/best use of the land, at the time of construction. The ROIC should be that of the new structure + the ROIC of the land rental, weighted by the capital invested in each. The ROIC on the old building has to be the same, or higher - were it lower, you would simply demolish and replace. Which will occur when the diminishing net rents can no longer adequately cover the rising upkeep. We don't much care whether this occurs as a result of market forces (building obsolescence, declining market rents, etc), or just simply wearing out (aging windows, carpet, HVAC, plumbing, etc). SD

Talk to your significant other .... 'shopping' is primarily entertainment. The utilitarian stuff (groceries, gas, etc) is just that - utilitarian. Bought on price (Walmart/ Costco), minimum in/out hassle (parking, self check-out, etc), convenience (groceries-to-go. on-line, etc). What's more entertaining? strolling an enclosed mall, or strolling the street-front? If you thought mall, you're out-of-touch. YESTERDAY'S teenagers went to the mall for entertainment. TODAY, they are mother's/grandma's, and meet for coffee at that sit-down street-front coffee shop - the price of the coffee is about the same; the entertainment experience? completely different. The chain-stores mentioned are primarily creatures of the mall, and 'mall culture' Business models that are out of date, inability to evolve with the times, and collapsing under their own weight - long overdue. Put the space to higher and better use. Technology is great, but value still prevails. Common practice at many grocery stores; is to shop/pay on-line at the grocery store price, and pay $5 for drive-by store pick-up. $10-15 for timed at-home delivery, inclusive of orders from the store hot buffet. Both Friday-night dinner, & the week-end grocery shopping - reliably wrapped up for $10-15. Value. Think about how you, and your parents/kids, actually shop? versus what is available in your area. Bifurcation is primarily generational, the shopping 'delivery format' just reflects each generations preferences. Fewer people, buying fewer goods, at lower margin - and the mall dies. SD