Weekend Reading #89

Photo by Bill Griepenstroh on Unsplash

This is the eighty-ninth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 16th October 2020.

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What we're doing.

Our fund closed its 5th full month of investing and we are loving every minute of it. Our process is evolving nicely, and we are pleased with the progress we have made to date.

This week a fascinating event occurred in the Polish market where a new stock, Allegro, listed straight at the highest market capitalisation in the country, which meant that it immediately got added into all the indices at the highest weighting, obligating passive trackers and ETFs to own it – but only AFTER the IPO, since you can’t add into an index a stock that hasn’t been listed.  

Over the past few days, Allegro has entered the WIG20, the local top 20 index, and the FTSE, and next week it will enter the MSCI suite of indices. This is the perfect illustration of what the world of investing has become: despite Allegro being a sound fundamental opportunity (one of the best new stories we have seen in years), it's no longer driven by fundamentals. Many managers continue to struggle with understanding the implications of passive flow dynamics – this is not just about Allegro being a “hot” IPO; it is one that mechanically has to be bought – whatever the price.

As we have written before, passive investing is here to stay and its impact on traditional "emerging markets” is getting bigger all the time.

What we're thinking.

Do we live in a simulation? We have no idea, but we love thinking about this because it’s such fun! We stumbled across this paper which somehow concludes that the chances we are in a simulation are somewhere around 50%. It involves some serious mathematical permutations which we are nowhere near sophisticated enough to judge, but if anyone can explain it in simple terms, please do! 

At the same time, what is unfortunately not a simulation is London being placed back into “Tier 2” COVID restrictions again (rule of 6 outdoors, no mixing of households indoors and opening restrictions on restaurants and pubs once more), with the well-anticipated “second wave” seemingly coming to pass here and in the rest of Europe. A sense of dread, frustration and worry re-emerged this week as that reality dawned, but one thought lingers in our minds: when it comes to markets, is there an opposing notion to “once bitten, twice shy”? Some degree of shock immunity?

When the virus first hit the mainstream consciousness early this year, the ambiguity and uncertainty about how serious it would be, including whether we would survive as a species (that thought must have crossed some minds!), was understandably enough of a shock to trip up markets. Aside from the fact that the “crash” was “only” about 30% (mild considering the worst-case scenario was mass extinction), the question is whether repeating that shock would yield the same negative reaction. 

Of course, the long-term impact of a repeat of global lockdowns (or in some cases, an extension) is profound and severe, especially for those employed in hospitality, travel and most “normal” service sectors. In addition, considering a fundamentally un-fundamental market structure (don’t forget the machines, who care not so much about case numbers as about flows), perhaps the “pain trade” in the face of a second wave is a gradual continuation of the melt-up in markets that really has been in play since 2008. 

The cynic in our heads would say that markets do what they do, and people scramble afterwards to fit a narrative retrospectively to what happened. Who knows? But with all prospective plans of sharing cottages in the countryside with a couple of friends over a long weekend now indefinitely postponed, we’re going to have lots of time to sit around and retrofit stories and narratives about the 230 or so days and counting of March 2020... at least it feels that way!
 
What we're reading.

We enjoyed this article on Pairagraph that discusses the rights and wrongs of technology, titled "Is Technology Actually Making Things Better?" It provides a blank page for a philosopher and a writer to argue whether technological innovation, as it continues to exponentially explode in pace and complexity, continues to benefit us as a species.  

With an ever-growing array of dazzlingly complex and potentially dangerous and problematic technological innovations at our disposal – from nuclear weapons to AI, automation to surveillance tech – it’s interesting to consider whether many of the technologies that have been deemed as successful upgrades in the past, say, 20 years, will end up doing us more harm than good.  

The central premise of the argument against is that whilst technology continues to evolve at a frightening pace, our intellect and wisdom does not. As philosopher, John K. Davis, argues:  

"The growing gap between our technological power and our wisdom is the ultimate cause of all these problems. We are clever enough to create problems we aren’t wise enough to avoid."

As is the format on Pairagraph, another learned individual rebuts Davis’ claim. Pairagraph is a great website that aims to provide “a hub of discourse between pairs of notable individuals”, and the way that the arguments are presented – in the form of on-screen, back and forth debate – is an interesting and new way of presenting content. In their archive you can find debates on a wide range of topics, ranging from a discussion around the depth of America’s supposed Decline to the aesthetics of mathematics. It’s a great resource and a very cool way of presenting discussion.  

A slightly depressing story for chess fans was news that the boom in popularity in online chess play had also heralded an explosion in cheating. Yes, that’s right, the most noble of all games was being subjected to ever increasing amounts of underhand activity due to the fact that players playing chess digitally on their phones and computers were also accessing the world’s smartest chess computers in neighbouring browser windows. This has led the world's largest chess play website, Chess.com, to close more than 85,000 accounts for cheating since March.  

Again, we’re reminded that technology can both be a power for good (chess play) and evil (chess cheating!). Using a supercomputer to work out your next chess move is quite a lot like doping in a bike race, and that neatly brings us onto...  

What we're watching.

An excellent way to spend 3 hours of your weekend would be to watch the documentary currently available on BBC iPlayer from their excellent Storyville brand that tries to re-tell a story that feels like it's been told a million times before. Lance is the tale of Lance Armstrong, and we highly recommend it.  

Remarkably, in spite of the many hours that have already been devoted to the subject, this take feels fresh and, unlike many of the other documentaries you might have seen about cycling’s answer to Marmite, this is a documentary that feels as if it’s telling the story the way Armstrong himself wants it to be told. You might assume that this would leave you feeling sorry for him, or at least allow you to feel some understanding or a little sympathy about his recent travails. But it didn’t turn out that way for us.

Rather, this documentary was a bleak reminder about the sort of personality that's required to get to the summit of one of the world’s toughest professional sport. Doping or no doping, Armstrong’s abrasive, aggressive, borderline-psychopathic personality is something to behold up close on camera and the immense power and control he had over one of the world’s most popular and iconic sporting events (the Tour de France) and one of the world’s most popular sports (cycling) makes sense when you consider the mental makeup of the man staring wide-eyed into the camera and admitting to the plethora of crimes that he once committed. And all with (almost) zero regret.  

Whether you’re a cycling fan or not, this is an amazing portrayal of what a Type-A personality looks like. Whether you love him or hate him, love cycling or hate it, this is an engaging and fascinating portrayal of a man, a myth. It’s not pretty but it is incredibly entertaining to watch.

Another incredibly entertaining sporting spectacle is the Indian Premier League which been fantastic so far, despite yet again there being no crowds and it taking place in the UAE. Yesterday the great Chris Gayle, sporting his grey-streaked beard, whacked 5 sixes upon his return to action. There is no one on earth who hits sixes like him. Every time that gargantuan bat of his makes contact, a nebula erupts. We don’t really mind who wins any of these matches we just love seeing the best players every single day for months on end. 

What we're listening to.

Naval Ravikant was back on the Tim Ferris Show this week with his usual mix of inspiring and educational content. There has been a real surge in interest in Ravikant’s thinking. Given the chaos we’re living through, his wisdom and teachings are very alluring and even gleaning a tidbit of two from him during an hour or two of podcast feels like a worthy way to spend your time.  

In this episode, he and Tim discuss methods for increasing happiness and reducing anxiety (as mentioned, Ravikant’s teachings are useful in times like these). They also discuss the current state of the crypto stablecoin market and Ravikant’s crypto investment strategy. As one of the earliest proponents of digital assets, his current view is always one worth listening to.  

With another lockdown looming in the UK, once again we're all going to have to work out new ways to entertain ourselves at home. In summer, when we earned a window when we could socialise outside in the sun, life felt a little more 2019. But autumn has set in, COVID numbers are moving in the wrong direction and restrictions, both local and national, have returned. Fortunately, audiobooks have come to our rescue throughout the year, providing a very pleasing means of escape from the humdrum, whether ingested whilst cooking, exercising or in the bath, as a way of getting a decent content fix whilst relaxing your eyes for a time.

One of the best we've heard in recent months is John Le Carre's, A Legacy of Spies. We'd read the book, but it stands as an interesting example of how a well put together audiobook can allow a great text to take on a new life. The story is classic Le Carre, with a couple of modern twists. It picks up where The Spy Who Came in from the Cold and Tinker Tailor Soldier Spy left off when a retired intelligence officer, a former colleague of George Smiley no less, is summoned to London to defend his actions during a Cold War operation where a British agent was killed. Classic Le Carre indeed, but what adds a certain elan to the audio version is the narration from the laconic actor Tom Hollander who stokes the tension and deepens the character depictions via his subtle, slow narration. You can sense he’s having great fun whilst delivering Le Carre’s text in his own unique way. 

This book certainly was a great read, but it's arguably an even better listen. And that is the power of the audiobook – it can take fine books to even loftier heights. We're looking forward to an autumn and winter packed full of them.