Weekend Reading #83

This is the eighty-third weekly edition of our newsletter, Weekend Reading, sent out on Saturday 4th September 2020.

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What we're thinking.

On our fund, we spent the week in calls with investors as we ramp up our discussions with family offices and institutional investors. We have launched, started solidly and are now at the point where we are ready to speak to new investors.

We spent much of the week thinking about volatility versus risk. This is a fascinating conundrum for any investor to balance. Our view here is that there is nothing at all wrong with volatility provided that one’s capital is not at risk of being destroyed. This is why the key variable we monitor when running money is capital at risk and not our overall exposure. Big swings in unrealised profit on a daily basis are not necessarily controllable, however the capital we place at risk is. With finite entry and exit points for all positions we endeavour to have as much certainty as possible regarding how much capital we have at risk on a daily basis. And after what we’ve seen this week it’s a good reminder that what we do is not for those with weak spirits!

This was particularly relevant this week as both equities and digital assets had some wild swings both to the upside first and then to the downside. It’s easy to get sucked into the day-to-day quagmire but with a proper, clearly defined process there is actually little to do other than make sure our plan is executed without distraction or emotion.

A chastening tale that caught our eye this week was the news that Rocket Internet plans to delist from the Frankfurt and Luxembourg stock exchanges. Not that we like revelling in schadenfreude, but Rocket’s struggles can teach us something about how to behave whilst growing a business.

Founded in 2007 by extravagant CEO, Oliver Samwer, and his two brothers, Rocket’s formula was to find promising online business models, often copying those of fast-growing U.S. e-commerce firms, and rush to create versions in different parts of the globe before the originals could expand internationally. By hiring Europe’s smartest engineering talent, Samwer claimed its companies could execute faster than tech firms elsewhere. In truth, he and his team seemed to be just frontrunning the world of technology, stealing and building the ideas of others.

Silicon Valley entrepreneurs have long claimed that Rocket merely produced “built-to-be-bought” clones that did little but exact a tax and a put a brake on American innovation. If that’s Rocket’s legacy, even all their big wins could be forgotten and one of the darlings of the European technology and venture capital scene could disintegrate into nothing.

Never backward in coming forwards, Samwer often boasted about his aim to "own the Internet". Whilst we respect ambition (and we are a mighty ambitious team), when building a company from the ground up, we’re fast finding that it’s important to play small and stay humble as you never know what’s around the next corner or how silly you’re going to look claiming victory or wildly stating your ambitions before time. Rocket Internet’s story is a blow for the European tech scene, and we should all be mindful to be learn as much as we can from it.

What we're reading.

Journalist and writer Matt Ridley offers up some much-needed optimism for times like these with his book, The Rational Optimist. We got stuck into it this week and it warmed us to know that, according to Ridley, the world is in a much better state than the rolling news or morning newspaper would have you think. Life is better than it has ever been and it’s getting better everyday.

The book may be a decade old but its core themes ring true today. It focuses on the fact that we humans are different from our predecessors and the animals that populate the seas, mountains and trees around us is the fact that we can trade. Or, rather, that we have the rational capability to trade. I’m strong but clumsy and you’re weak but dextrous. So why don't I cut down the trees and you turn them into shelter? Sound good? Great. Let’s shake on that and make progress.

Ridley argues that this is why the world is evolving at such a pace, primarily because the systems of trade (the hyper-evolved versions of which are used in financial services every day) are developing at a staggering pace, allowing scale to improve all aspects our live, freeing us up to do more things that interest us and more things that drive progress and evolution. Ridley takes us from the hunter-gatherers who first ventured out of Africa to the modern moguls of Silicon Valley, and shows how humanity has built innovation on innovation in its never-ending search for progress. And, what’s great is, it turns out we’re rather good at this trading of skills and, hence, the world is becoming a much more healthy, safe and prosperous place.

Given the year we’ve all had to endure, reading Ridley’s account feels very good for a few hours. Think like Ridley and you can find a little rational optimism of your own.

News broke this week that the creators of Game of Thrones are bringing Liu Cixin’s sci-fi trilogy “The Three-Body Problem' to Netflix. A screen adaptation has been on the yards for some time, with Amazon rumoured to have paid a small fortune for the rights a couple of years ago – but Netflix have clearly outflanked them on this one.

Netflix’s Peter Friedlander describes Liu Cixin’s epic trilogy as having “changed what science fiction meant to me for ever”, which is one way of putting it. Regular readers of this newsletter will know that The Three-Body Problem has had an enormous influence on our thinking – and our company name! It is a contender for the most transformational piece of fiction we have read, and it will be challenging to adapt this subject matter to television. But if anyone can do it, Netflix can.

What we're listening to.

Times Radio is an ambitious project recently unveiled by The Times newspaper. It’s both a radio station (with 24-hour broadcasting) and a podcast service, with a host of fantastic programs and series to get stuck into. Whether you like The Times as a newspaper or not, the coverage for the most part seems to be impartial and educational, with a range of fascinating topics being explored at a depth that few other providers of this sort of service seem willing to dive into.

This may be because Times Radio is run and presented by journalists, hence all the content is meticulously researched and crafted. It’s also a platform for education and debate rather than other news platforms who seem more intent on interrogation, hysteria and fear mongering. In short, it’s very good. And you don’t have to be a Times subscriber to access it, and that makes it even better.

The BBC Proms returned to our screens, speakers and headphones this week, with an empty Royal Albert Hall providing the venue for the annual festival of music. Given social distancing measures, this year’s Proms are not the usual audience-friendly fare, but the music quality is as high as ever and, given the restrictions in place, the creativity being shown in putting on some of the performances is, potentially, pushing the Proms to even greater heights.

Sunday’s Prom conducted by the great Sir Simon Rattle proved how playing to an empty Albert Hall can have its advantages, with the night’s programme devised to exploit the spatial effects that be achieved by playing to the cavernous space of the 40m high hall. The music included Elgar, Beethoven and a moving finale of Vaughan Williams’ Symphony No. 5.

Like so many elements of our lives right now, an empty Albert Hall looks strange and feels very unfamiliar. But it’s pleasing to report that the quality and the creativity of the BBC Proms continues to be as extraordinary as ever.

Edward PlayfairSeptember 6, 2020