Weekend Reading #304

This is the three-hundredth-and-fourth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 1st March 2025

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What we're thinking.

What a week in the markets! For us this is what markets are all about - exciting, keeping a fund manager on his toes with adaptability under pressure being the most in-demand trait. Nvidia has fallen post earnings after failing to reclaim previous highs. The AI theme is off the boil and so are the rest of the markets. Something we always notice in markets like these is that often, eventually even the good stuff comes down. Good stuff being the sectors and geographies which had been leading the rise. In recent weeks this has been China, gold stocks and some other traditional emerging markets. These names have now begun to pull back somewhat from their recent highs. It’s always tough for long term investors when markets go down. The good news is we are not long term investors. We are investors who compound over the long term but not through sitting on our hands and doing nothing. This is what active management is about! And we love markets like this. There are so few managers around who genuinely know the craft of short selling. There is absolutely nothing in markets like a successful short. Why? Because shorting is HARD. This reminds us of the John F Kennedy moon speech delivered in 1970. “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.”
 
What nuggets or secrets can we offer you to work out where the markets are going next? Absolutely none. The uncertainty as we often say is the whole point! We don’t know if this is THE big one or whether this is another pullback to be bought. We have our base case and our alternative paths and as ever we look to the markets price action for clues and act accordingly. This reminds us of another quote from the trilogy that gave this business its name, The Three Body Problem. This is a quote we have shared more than once in this very newsletter. And we do so again because it’s so damn appropriate.
 
“干我们这行的，其实就是把好多看上去不相关的事情串联起来，串对了，真相就出来了。”
“In my line of work, it’s all about putting together many apparently unconnected things. When you piece them together the right way, you get the truth."

This is the answer of police detective, Shi Qiang, to a question from nanotech professor, Wang Miao, desperate to ascertain what was going on in a tumultuous world. Shi Qiang is one of our favourite characters from the book as he is direct and methodical. He isn’t an intellectual, doesn’t waste time with fancy words. He is extremely street smart and sharp as a razor.
 
Good luck out there.

What we're reading.

This pasting of an article by Josh Wolfe in an X post, on the merits of reading, is really good for any parent to read. Whether for their kids or for themselves, reading has become a lost art. Particularly the reading of fiction. I love fiction and look forward to it as a way to disengage from the always on world we live in. It is an analogue activity and its deeply rewarding. When I read a good story, I can sometimes even feel my brain restoring itself as every minute spent reading is a minute away from Twitter or the screens. It’s written by a chap named Tim Donahue who is an English teacher at a school in Connecticut. Have a READ.
 
Stripe released its 2024 letter this week to much acclaim. Inside this report was a section on stablecoins in which the Collison brothers referred to stablecoins as “the room-temperature superconductor for financial services”. This is something anyone who has used crypto has known for years but is now becoming more and more real in the corridors of power in the US. Stablecoins are one of the focal points of impending regulation and Stripe is positioning itself to be at the forefront of whatever use cases stablecoins create as evidenced by its purchase of Bridge late last year. It is quite possibly THE killer use case of crypto and the new administration has already worked out that applied correctly this technology can EXTEND US Dollar hegemony. DC
 
This System Card for GPT 4.5 was dropped by OpenAI this week, essentially a preliminary report on the benchmarking performance of the new GPT 4.5 release. To put things in context, given a previous comment from OpenAI that each GPT generation is c. 100x more training compute, a .5 version (GPT 4.5 vs GPT 4) implies this took about 10x the training compute as GPT 4. So the question is whether it’s 10x better. On one hand, OpenAI lauds this as the “friendliest” model yet, scoring above GPT 4 on a “vibe test”. On the other, the price for friendliness is 29x more expensive than GPT 4o to input, and 13x more expensive to get a response. It’s also 10x more expensive that Anthropic’s latest Claude release 3.7 Sonnet. Critically, it scores worse on many competency benchmarks for reasoning. Sam Altman is spinning this as a “different kind of intelligence” – which may well be true, if the aim is to make artificial people/consciousness. But the flipside of this thought is: did we already plateau in terms of the returns to training new models? Is this as clever as it gets for an LLM? Suppose we’ll find out over the coming months. EL

What we're watching.

Zero Day on Netflix was quite fun. I wouldn’t put it up there for major suspense or surprise but it was a decent show with analogies to today’s dysfunctional bipartisan divide in US politics. Robert de Niro plays a former president tasked with returning to head up a commission which is investigating the biggest cybersecurity event in US history, one which kills thousands. It’s only 6 episodes so not too deep and was good entertainment. Would I recommend it? Depends how little else you have to do. DC

What we're listening to.

Steven Bartlett on Diary of a CEO really does get good guests and they don’t get much better than Jimmy Donaldson or as we all know him, Mr Beast. The guy is a phenomenon and this chat goes into his history, what got him to make videos on Youtube, how much he loves his Feastables chocolate range and much more. This is a brilliant dive into the mind of one of today’s great entrepreneurs.
 
Le Shrub is an anonymous Twitter account. The guy is a former hedge fund manager who has quite a fun sense of humour about the things most people in this industry take WAY too seriously. He was on the Business Brew podcast recently and it’s a really good listen. Lots of talk about the dollar, about EM, about Trump etc and some niche ideas too. Well worth a listen. DC