Weekend Reading #71
Photo by Mitchell Luo on Unsplash
This is the seventy-first weekly edition of our newsletter, Weekend Reading, sent out on Saturday 6th June 2020. To receive a copy each week directly into your inbox, sign up here.
*****
What we're doing.
We’re excited to welcome our first interns to Three Body Capital, kicking off on Monday. We are yet to meet them in person but they are clearly highly impressive. We’re looking forward to getting a fresh perspective on our business and hopefully learning some new things.
18 months in and with 3 businesses live we’ve taken a step back this week to consider our positioning and how the wider business fits together. This has involved reflecting on our business as a team and asking partners for feedback on how they perceive us. The result has been really gratifying – and exciting.
When we started our business 18 months ago, we didn’t set out to build a multi-sided platform, but that’s what’s happened. When we drill into the real purpose and meaning of Three Body Capital, it’s all about access.
Our diversified offering gives investors and issuers the ability to access opportunities previously beyond their reach. Our clients can play in new markets in new ways. We’re making this possible with technology that bypasses the legacy infrastructure of big finance, reducing friction and costs. Our deal network and trading platform enable clients to participate in private and public markets. And our hedge fund gives investors plug-and-play access to markets in a way that aligns interests and promotes the right kind of risk-taking.
It’s a neat mix and, we believe, an exciting, multi-dimensional offering that ticks a lot of boxes for a lot of counterparties and partners. Who knows, maybe one day we’ll add a private fund into the mix to round out our offering?
What we're thinking.
The cyclical rally is now proceeding at full speed with some explosive moves seen this week, particularly in the most beaten down markets. As the old saying goes, “One can make the most money when things go from very bad to just bad”.
The question is how much can one make if things go from very bad to very good in a matter of weeks?
As the rally feeds upon itself and with still a lot of investors sitting on the sidelines in disbelieving astonishment, there is room for more to come. As ever we watch the prices as our guide and follow our investment process to make sure that if we are wrong, our downside is covered.
What we're reading.
The explosion of wealth (and inequality) in America over the last 150 years has led to the state that US politics and society finds itself in today. That almighty economic advance was shaped by a number of men, including John D Rockefeller (oil), Andrew Carnegie (steel), JP Morgan (finance), Henry Ford (mass production) and Cornelius Vanderbilt (railways and shipping). The stories of these men tell the story of modern America, a complex, disparate, warring nation that embraced capitalism to become the richest and most powerful on earth. Understanding these giants, heroes, if you like, and the time they lived through allows us an insight into the US today, both its awesome might and its terrible struggle.
Sitting in London, we don’t profess in any way to be experts on American history but we’re very eager to learn. Rockefeller’s biography, Titan, by the great Ron Chernow is a great book to read if you’re interested in this time and the modus that made America the most powerful nation on earth. Of course, every developing nation through history has had their own titans, but America’s stratospheric growth at the dawn of the 20th Century is almost without parallel. The wealth created for the nation, and for the individuals who drove that wealth creation, was like nothing the world had ever seen.
These men epitomised The American Dream: the thought that whoever you are, wherever you came from, whatever you had, you were in possession of an equal chance of becoming a person of success. Equality of opportunity was available to all. Carnegie was a penniless Scottish immigrant. Rockefeller’s father was a snake oil salesman and small-time crook. These men went on to have more power than the leaders that governed them. They changed the world and proved how, in America, if you rolled up your sleeves and worked hard you could achieve whatever you wanted. Whether that dream is still alive one hundred years on is hard to say, but reading about these giants can help us to better understand how America came to be where it is today.
This week we returned to Bill Gurley’s iconic blog post, “All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces”. In late 2020 he wrote:
“Entrepreneurs accurately recognize that the connective tissue of the Internet provides an opportunity to link the players in a particular market, reducing friction in both the buying and selling experience. The arrival of the smartphone amplifies these opportunities, as the Internet’s connective tissue now extends deeper and deeper into an industry with the participants connected to the marketplace 24×7 – whether they are in the office, at home, or out in the field.”
Of course, all this seems pretty obvious now. But back then, it wasn’t. Many hugely successful entrepreneurs have leveraged Gurley’s insights on the formation of online marketplaces to their advantage, and we too have benefitted from applying his framework to our business (especially 3BC). In particular, his thoughts on industry economics have influenced our approach:
“If you can positively change the economics of an industry, you will find the participants on both sides rooting for your success.”
This is exactly how we are approaching partnerships with introducers and affiliates who bring deals and investors to our platform. Our philosophy is one of mutual benefit, in which we help influential and connected to grow and monetise their own networks in exchange for help in growing and monetising our own. This is something that Instagram has done very well over the years. It really is a “network of networks”, and that’s exactly how we like to think of 3BC, too.
What we're watching.
If you’re a fan of Agatha Christie or even just a good old fashioned whodunnit murder mystery, then Knives Out is the Saturday night film for you. Set in a lavish upstate New York mansion (the sort once lived in by Rockefeller, we should think), it tells the story of a suicide (or murder?) of a publishing magnate and a private detective’s effort to unpick the suspects from his grieving family members.
Daniel Craig hilariously plays the laconic detective and he is superb, and the all-star cast who make up the eccentric family of suspects are all unique and fascinatingly portrayed. The house itself is also the star of the show that, in true Agatha Christie style, contains many surprises of its own. This is a film that keeps you guessing right up until the final scene, the sort that actually means that you ignore your phone for 2 hours. And there can be no finer endorsement for a film than that.
What we're listening to.
The always excellent Malcolm Gladwell put out a timely episode of his podcast, Revisionist History, in which he read a chapter from his recent book, David and Goliath.
Gladwell has been writing about race and policing for decades. And, given what's been happening in the US this week, on his podcast he thought it beneficial to take a step back and consider policing in a broader context. The chapter he reads provides an analysis of a riot in Northern Ireland in 1970, at the start of The Troubles. That riot was many miles and many years away from what we're seeing in Minneapolis, Washington and New York today and it was about divisions of religion and class rather than divisions of race. But the core questions asked in 1970 and today are the same: if you have power, what does it mean to use it, and how do you use it wisely? And what are the consequences if you don’t?
We think we’re rational creatures. Economics and business rely on the assumption that we make logical decisions based on evidence. But we aren’t, and we don’t. We are driven by unconscious desires, we are drawn to the beautiful, the extravagant and the absurd. So sometimes, if you want to influence people’s choices, you have to bypass reason.
Rory Sutherland is a legendary ad man whose TED Talks have been viewed nearly 7 million times. This week we got stuck into his first book, Alchemy, in which he blends cutting-edge behavioural science, jaw-dropping stories and a touch of branding magic, on his mission to turn us all into idea alchemists. Perhaps the big problems we face every day, whether as an individual or in society, could very well be solved by letting go of logic and embracing the irrational?