Weekend Reading #53

Photo by Annie Spratt on Unsplash

This is the fifty-third weekly edition of our newsletter, Weekend Reading, sent out on Saturday 1st February 2020. To receive a copy each week directly into your inbox, sign up here.

*****

What we're doing.

This week we’ve been watching the Coronavirus unfold with concern for everyone affected – especially those in China. One thing’s for sure; no country or state apparatus is better equipped to deal with a healthcare challenge of this scale better than China. The level of state control means that the focus and resource thrown at this is formidable. Of course they haven’t done a perfect job, but it confirms how the country has matured in recent decades. It’s laughable to persist in calling China an “emerging market”.

What we're reading.

The FT recently published a piece provocatively entitled “Why some big investors have had enough of hedge funds”. It’s a bit hyperbolic and inflammatory, but articles along these lines seem to be appearing with alarming regularity, supporting our core thesis that the investment management industry is ripe for profound transformation. The comments beneath the article say it all, with one reader observing:

“Issue with hedge funds is lopsided risk reward for managers and investors. Free lunch in today’s world?”

Some see change as a huge threat; others, an opportunity. We’ve designed our business model with the latter in mind, but of course, we don’t have a crystal ball. We simply seek to cap our downside and maximise our upside – and to do the same for our clients.

This will get you thinking. It’s an update from Bloomberg on a hallucinogenic root being pitched as a treatment for opioid addiction, which kills hundreds of thousands of people every year. Atai (a startup backed by billionaire investor Peter Thiel) and partner DemeRx are preparing a mid-stage trial of a synthetic form of the substance, called ibogaine, for treatment of drug addiction. The drug has a fascinating heritage – its use harks back to an ancient ceremony marking young males’ entry to adulthood at the West African Bwiti tribe. Then, between 1930 and the 1960s, the compound was marketed in France, purporting efficacy as a stimulant. Now it has the potential to help drug addicts transform their lives. The holy grail for researchers is to find substance abuse treatments that aren’t themselves addictive – these are referred to as “addiction interrupters” that can reset the brain chemistry involved in dependency. This is a fascinating subject with huge investment potential. We are following it closely and look forward to exploring it in more depth in a future blog post. If this is your thing, please get in touch as we’d love to share ideas.

If you want a really fun (and intense) read, we can highly recommend this chapter of Nassim Taleb’s book, “Skin In The Game”. It explores how minorities can exert disproportionate influence over complex systems, and the section on markets is just brilliant. Taleb observes that stock markets represent more than 30trn dollars, but a single order of only 50bn in 2008, caused them to drop by close to 10% and shed 3trn in value:

“The market is like a large movie theatre with a small door. And the best way to detect a sucker [...] is to see if his focus is on the size of the door or on that of the theater.”

Speaking of which, this diatribe on Tesla’s $100bn valuation (making it the most valuable car company in the world by market cap) is a timely reminder that markets are not always rational. They can be highly emotional. And in order to navigate them successfully, we need to fully appreciate the emotive power of brand and its most potent manifestation, the cult of personality. In markets the only thing that matters is the stock price, and right now Elon Musk is winning. Tomorrow, who knows?

What we're listening to (and watching).

This podcast episode is worth a listen for anyone interested in learning more about crypto. Kelvin Koh, a former Partner at Goldman Sachs and current CIO at HK based crypto hedge fund Spartan Capital talks about diversification in crypto, the risk of shorting cryptoassets, the impact of derivatives on crypto price discovery, and the impending arrival of institutions on the crypto scene, amongst other things.

And finally, we recommend tuning into the start of this year’s Six Nations. Even if you’re not a hardcore rugby addict (we fall into this category), the athleticism and commitment of these people will blow you away. Best served with a pint of Guinness!