Curated Insights 2018.03.18

Remember to look up at the stars and not down at your feet. Try to make sense of what you see, and wonder about what makes the universe exist. Be curious. And however difficult life may seem, there is always something you can do, and succeed at. It matters that you don't just give up. -- Steven Hawking (1942-2018)

An Apple R&D bonanza

Much of this focus mantra is driven by the fact that Jony Ive and his Industrial Design group oversee Apple’s product vision and the user experience found with Apple products. With only 20 or so members, Jony and team can only do so much at any given moment. In a way, Apple’s organizational and leadership structure serve as safeguards preventing Apple from spreading itself too thin and doing too much. Instead of trying to expand the design team in order to work on more products, Apple’s strategy appears to be to do the opposite and place bigger bets on a few products.

These bigger bets come in the form of owning the core technologies powering Apple devices. Apple wants to reduce dependency on others. We are quickly moving to the point at which every Apple product will be powered by core technologies developed in-house. Such a reality would have been a pipe dream just a few years ago. Apple believes this strategy will give them an advantage in the marketplace. It’s a new twist to the Alan Kay line about “people who are really serious about software should make their own hardware.” We are moving to the point at which companies serious about software should design their own silicon. Having $285 billion of cash on the balance sheet gives Apple the freedom to pursue this ambitious goal. It is this motivation to control more of the user experience while pursuing new industries to enter that is driving the remarkable increase in Apple R&D expenditures.


Apple goes from villain to coveted client with this Finnish firm

Created through a merger of Sweden’s Stora AB and Finland’s Enso Oyj in 1998, the company has spent billions shifting from the declining paper business — as people increasingly switched to digital from printed newspapers — to focusing on innovative wrappings made from tree and plant fibers. More than a third of its sales now come from consumer board and packaging solutions, up from a fifth two decades ago.

Apple has undergone its own shift, away from plastic packaging. For its recent iPhone 8 launch, Apple used a fiber-alternative instead of the polypropylene wrap around the power adapter. The packaging for the iPhone 7 used 84 percent less plastic than the previous version.


Intel fights for its future

“…Broadcom is already an Apple parts supplier, and it wouldn’t want to jeopardize a good relationship with a negotiation over royalties. The exact percentage that Qualcomm charges in royalties is of the utmost importance to a standalone Qualcomm…But for a merged Broadcom-Qualcomm, the exact amount of the royalty would be less important than a good working relationship with Apple.”

If the dispute is settled, Intel loses its wireless modems deal with Apple. No mobile CPUs + no modems = nothing of substance. Broadcom would be in charge — they would hold all the cards.


Google wants to impose order on India’s street address chaos

Google is tackling the project as part of its own search for the next billion users. Non-standard addresses now increase the costs of running all types of commerce from ride-hailing to online retailing and food delivery. Plus Codes — in a ‘6-character + city’ format — can be generated and shared by anyone on Google Maps, while apps that use location services can incorporate those codes on their own platforms. And a user can enter the Plus Code into searches to call up a location. Google Maps is also adding voice navigation in six more Indian languages, after introducing Hindi three years ago.

WhatsApp could shake up digital payments in India

At stake is an Indian digital payments market that Credit Suisse Group AG estimates could be worth $1 trillion within five years and has homegrown and global players jostling for dominance. WhatsApp joins Google, Alibaba-backed Paytm, a unit of local e-commerce leader Flipkart and dozens of others already vying for customers as smartphone adoption surges. Mobile payments caught fire at the end of 2016 when the government’s demonetization temporarily took 86 percent of all paper currency out of circulation to tackle corruption.

“WhatsApp is likely to change the digital payments scenario by cannibalizing other wallets’ users and adding new converts,” said Satish Meena, an analyst at Forrester Inc. “Its base of 200 million users, a daily active usage that’s about 20 times higher than Paytm’s, and the fact that Indian users spend a lot more time on WhatsApp than even on parent Facebook has huge advantages,” said Meena.


Amazon turbocharged Audible’s domination of audiobooks

Audible accounts for about 41 percent of all audiobooks sold, including digital and physical formats, according to researcher Codex Group LLC. Amazon also sells audiobooks directly through its website and, with Audible, accounts for more than half the market. Audible doesn’t disclose financial information, but says its annual subscriber growth is in double digits. Most customers pay $15 for a monthly subscription that comes with a single audiobook. (A la carte, they often cost more than $20.) The company’s library includes 400,000 titles.


How Amazon’s bottomless appetite became corporate America’s nightmare

For many companies, perhaps what’s scariest is that Amazon has lots of room to grow, even in retail. In the U.S., more than 90 percent of all retail sales still happen in physical stores. In some big categories, including home furnishings, ­personal-care products, toys, and food, the brick-and-­mortar numbers are even higher. As the share of online shopping continues to increase, Amazon seems likely to benefit the most. It’s responsible for roughly 44¢ of every dollar Americans spend online, and it’s now mixing in retail stores.

Amazon is far from invulnerable. All the same old red flags are there—a puny 2.7 percent e-commerce profit in North America, massive outlays to establish delivery routes abroad—but few are paying attention. Anyone buying a share of Amazon stock today is agreeing to pay upfront for the next 180 years of profit. By one measure, it’s generating far less cash than investors believe. And its biggest risk may be the fear of its power in Washington, New York, and Brussels, a possible prelude to regulatory crackdown.


Netflix’s secrets to success: Six cell towers, dubbing and more

Why Netflix almost never goes down. The company’s service achieved an availability rate of 99.97% in 2017, according to Netflix engineering director Katharina Probst. Part of that is due to the fact that Netflix learned from outages early on, and now uses Amazon’s AWS data centers across three regions. When one of those regions does go down, Netflix automatically redirects all of its traffic to the two other regions.

In fact, the company even tests this fall-back regularly by just taking a region offline itself — something the company calls chaos engineering. “We intentionally introduce chaos into our systems,” explained Probst. Up until recently, it took Netflix up to an hour to successfully redirect all requests in case of such a massive failure. More recently, the company was able to bring that time down to less than 10 minutes.

Amex to woo retailers with biggest fee cut in 20 years

At a presentation for investors in New York last week, the company said the global average of the fees it charges merchants — known as its discount rate — would decline five or six basis points this year, to about 2.37 per cent. Each basis point is equivalent to about 11 cents of earnings per share, said Don Fandetti of Wells Fargo Securities.

The fee cuts for 2018, which are about double previous guidance, are the latest sign of competitive and regulatory pressures on the biggest US consumer finance company by market value. American Express is facing questions from Wall Street about competition from US banks, which use the rival payment networks Visa or MasterCard. Big-spending Americans have flocked to premium cards issued by banks.


SoftBank looks to invade Wall Street’s turf

Until recently, SoftBank’s fledgling investment arm was little more than a group of analysts in Tokyo and London sifting through possible deals. Buying Fortress provided the group with a template to use as it moved to becoming an actual institution, with a formal investment committee, compliance department, trading desk and investor relations unit. The new entity is now 1,000 people strong.


How China’s Huawei killed $117 billion Broadcom deal

Huawei uses Broadcom’s chips in networking products such as switches that direct data traffic between connected computers. Qualcomm also works with Huawei. The two said on Feb. 21 they completed testing on technology that advances faster 5G mobile services. Under one envisioned scenario, wireless carriers may be forced to turn to Huawei or other Chinese companies for cutting-edge telecoms gear. That’s unacceptable for a U.S. government that, concerned about the security of Huawei’s gear, has already blocked the sale of the Chinese company’s smartphones on American carriers’ networks.

Government officials and industry executives have long harbored suspicions that the closely held Huawei works primarily for Chinese government interests, especially as it sells increasing amounts of critical telecoms infrastructure to Europe, Africa and the Middle East.

WordPress is now 30 per cent of the web

Public data recorded that WordPress’s share of the top 10 million websites had ticked over from 29.9 per cent to 30 per cent. The firm put some context on that data by noting that 50.2 per cent of the world’s websites don’t run a content management system (CMS) at all. That means WordPress has over 60 per cent share among websites that do run a CMS. That’s a dominance few products in any category can claim. It’s also notable that WordPress has nearly ten times the market share of its nearest competitor, Joomla, which has 3.1 per cent share of all websites and 6.3 per cent of the CMS-using population.

Share buybacks work better in theory than in practice

The top 20 companies in terms of buybacks accounted for almost 50 percent of total expenditures.

The main problem with buybacks is that effects of bad decision-making don’t become clear until much later. To paraphrase Jeff Macke, stock buybacks are an allocation decision that has a hypothetical value to shareholders, but a real explicit value to option-holding executives. These people are supposed to be managing companies for the long term but get compensated over the short term. This misalignment if incentives should be a concern. It does seem like those with a vested short-term interest in stock prices put a thumb on the scale away from investments or dividends and towards buybacks.

Diving into the detail, the top culprit was Biotech companies, with 97% of biotech IPOs in the loss making camp. Second place, no prizes for guessing, was Technology companies at 83%. But interestingly enough that left 'all other companies' at 57% - which is actually a record high.

What’s the biggest trade on the New York Stock Exchange? The last one

Last year, 26% of all trading activity on the NYSE’s flagship exchange took place in the last trade of the day, up from 17% in 2012, exchange data shows. Last year, trades at the close accounted for more than 8% of trading volume in S&P 500 stocks, nearly four times what it was in 2004, according to Credit Suisse .

At least $10 billion worth of shares are traded in the NYSE’s closing auction on an average day, with a final tally of stock prices typically listed by 4:05 p.m.

A fund manager such as Vanguard, for instance, might need to buy millions of shares at a time. Making such a big purchase in the middle of the day could dry up supply, causing the price of the stock to jump—bad for Vanguard. By waiting to trade at a time when there are millions of shares being bought and sold, the risk of moving the price is reduced, saving Vanguard money.

Last year, the NYSE collected $87 million—45% of its net revenue from the exchange’s core stocks-trading business—from trading at the close, according to the research firm Equity Research Desk. The NYSE’s maximum fees for trading at the close have gone up 16% over three years, according to regulatory filings.


Is the US stock market overvalued? Depends on which model you ask

The Fed model was valid during the period from 1958 to 2010. Since after 2010 there has been no relationship between the stock’s earnings yield and the bond yield, the Fed model cannot be used to judge whether the US stock market is overvalued. In other words, the Fed model cannot support the high current CAPE ratio on the grounds of the low-rate environment.

The Shiller model is over-simplistic. It is justified only on the grounds that there is an empirical inverse relationship between the CAPE value and the subsequent stock market return over horizons ranging from 10 to 15 years. What is less known about the validity of the Shiller model is that it has forecasting power only for real returns.

The other serious problem with the Shiller model is that it cannot be successfully used to time the market. If the investor believes in the validity of the Shiller model, this investor should buy the stocks in the early 1970s. However, in this case, the investor would be highly disappointed because the stock prices had been decreasing till the early 1980s. Similarly, if the investor uses the Shiller model, this investor would sell stocks in the early 1990s, missing out on huge net gains over the full bull/bear cycle.

Pozen Priorities

“The common practice we found among the highest-ranked performers in our study wasn’t at all what we expected. It wasn’t a better ability to organize or delegate. Instead, top performers mastered selectivity. Whenever they could, they carefully selected which priorities, tasks, meetings, customers, ideas or steps to undertake and which to let go. They then applied intense, targeted effort on those few priorities in order to excel.”


Ironies of luck

If risk is what happens when you make good decisions but end up with a bad outcome, luck is what happens when you make bad or mediocre decisions but end up with a great outcome. They both happen because the world is too complex to allow 100% of your actions dictate 100% of your outcomes. They are mirrored cousins, driven by the same thing: You are one person in a 7 billion player game, and the accidental impact of other people’s actions can be more consequential than your own.

In investing, a huge amount of effort goes into identifying and managing risk. But so little effort goes into doing the same for luck. Investors hire risk managers; no one wants a luck consultant. Companies are required to disclose risks in their annual reports; they’re not required to disclose lucky breaks that may have led to previous success. There are risk-adjusted returns, never luck-adjusted returns.

Here’s why Stephen Hawking never won the Nobel prize in physics

It takes decades to build the scientific equipment to test theoretical discoveries; to put this into context, Einstein’s theory of gravitational waves in space, which he first proposed in the 1920s, was only recently proven in 2016.

One of Hawking’s most important finds was “Hawkings Radiation,” the theory that black holes are not completely black after all, but emit radiations that ultimately cause them to disappear. The issue is, the technology needed to observe this radiation will take years and cost millions before Hawking’s theory can ever be verified.

Curated Insights 2018.01.07

The $100 billion venture capital bomb

Son must deploy $20 billion, or a fifth of the fund, every year for the next five years to meet investors’ terms and their expectations in a market that many already consider overvalued.

Son explained to Hauser that there was a big new wave of computing coming — the sixth, in Hauser’s estimation, following on from the mainframe, the minicomputer, the workstation, the PC, and mobile. This next wave would automate processes in industrial manufacturing and on consumer devices. Son said Arm could uniquely capitalize on this new order as the leading processor manufacturer behind the Internet of things.

“This is the company,” Son said in a televised interview. “No one can live on the earth without chips — it’s in cars, refrigerators, everywhere. So if chips are the things everyone needs, and one company has a 99 percent market share, there must be a barrier. They’re not monetizing well enough. But if I own it, we can monetize it much better. I think the company is going to be more valuable than Google.”

Aside from its 95 percent domination of smartphones, Arm has 34 percent of the global processors market. There are currently 110 billion Arm processors in the world. The company has forecast a total of one trillion by 2035. As the applications get more advanced — be that a car, a washing machine, or a drone — they demand smarter processors, which are more expensive to produce in-house. “We price our fee at a tenth of the cost of what it would cost to develop it yourself,” Thornton notes. “So when you’re staring down the barrel of $100 billion and ten years to develop that processor yourself, we can say it will cost $10 billion from us and you can have it instantly. This is why we have expanded so rapidly over 20 years. One by one, design team by design team, we will become the processor of choice in those markets.”

“Arm Holdings has an insight into the future. When Arm makes a contract with a new business venture, providing the Internet of things for automobiles or farming, Arm will know what is in the pipeline for the Internet of things two years ahead.” SoftBank, in turn, gets a head start on funding companies for a market that doesn’t yet exist.

Analysts say SoftBank, which declined to comment for this article, is at work on vertical integration: Foxconn builds devices, Arm supplies the chips, and SoftBank-owned Sprint and OneWeb, an Internet satellite company, operate the networks on which the devices run. Vision Fund portfolio companies will reap the benefits of these partnerships. SoftBank sits in the middle, introducing high-growth prospects from the fund to one another and to the infrastructure on which their success rides.

Units of time are the new currency

Buffett’s not wrong, but technology has changed the nature of competition. While businesses were once considered only as valuable as the dividends they paid out, the “impenetrable” moats that let companies spit off excess cash are dwindling. A moat today is simply a temporary buffer that helps a company get ahead of the next innovation cycle. When you compound time, you’re creating and recreating value faster than the current innovation cycle.

This is the formula for compounding time into a utility and beyond: 1) Reduce friction for your customers and yourself. Use the time you save to build your utility. 2) Compound time by investing in the ecosystem and getting other companies to integrate with your product. Other companies will integrate with you to save themselves time, building on top of your platform and giving you time to invest in the next great business. 3) Buy other people’s time to defend your utility and stay relevant. Smartly acquiring new products helps you maintain your utility.

Jeff Bezos: “All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.” While this created more work in the short-term, it broke Amazon down into hundreds of micro-services that communicated via APIs. By making all services accessible via API, Amazon drastically reduced the time it took to deploy new features and functionality.

Google’s machine-learning algorithms are reportedly five to seven years ahead of the competition. By keeping TensorFlow to itself, Google would have maintained its lead time — similar to how moats are created by stockpiling assets. But by taking the opposite approach and giving TensorFlow away for free, Google created a utility.

Building a traditional moat will be antithetical to building a great business. The only way to survive is to extract the core of your business and spread it out to compound returns on time. First, you have to save time for your customers and even yourself. Then, you have to invest it forward by co-operating with other products in your ecosystem. Finally, you have to acquire new innovation to maintain your lead.


Why has Waymo taken so long to commercialize autonomous taxis?

To estimate the rate at which passengers will tolerate autonomous taxi errors, we analyzed the manually driven car statistics to set the hurdle. On average human driven cars break down roughly once every 50,000 miles and crash once every 240,000 miles,2 thus offering perspective on acceptable tolerance rates for autonomous vehicle SIFs and UFs.

Supporting this hypothesis, its cars seem to have had difficulty making left turns. One possible explanation is that it has chosen not to vertically-integrate, outsourcing vehicle production to partners like Fiat Chrysler and then taking engineering shortcuts by integrating its sensor suite into a product manufactured away from its controls. In contrast, Tesla’s and Cruise Automation’s (GM) manufacturing operations are vertically-integrated, which could become an important source of competitive advantage.

We are skeptical of that negative conclusion for a number of reasons. Today, Waymo probably is trying to maximize its failure rate to identify faults and root them out. Some stretches of road are trickier and some intersections more difficult to navigate than others.

Getting my fix of Starbucks

SBUX has been successful engendering loyalty from its customers as well- Starbucks Rewards has 13.3mm members in the US and an incredible 36% of all dollars tendered in the stores is transacted through the loyalty program (US Company operated stores).

In the US- the average new SBUX location generates revenue of $1.5mm (average unit volume or AUV) and generates a year 1 store profit margin of 34% or $510k. Based on an average store investment of $700k in the US, this results in an ROI of ~75%. Compare this to a McDonalds with an ROI of ~30%, an average fast casual operator at ~40% or even Chipotle (at its peak before the food illness issues) at ~70%. This means that the average SBUX store earns back its investment a third of the way into its second year – very compelling unit economics. The math likely changes with higher investments in Reserve stores and premium Roasteries in the coming years but if these seek to elevate the overall SBUX experience and thus drive pricing power through the entire system, it’s the right move for the long term.

Starbucks is a well-positioned company led by a smart management team playing “the long game”. While store growth in more mature markets and continuing competition in premium coffee may be a drag to future growth, Starbucks benefits from a moat in the form of a strong brand and a loyal, repeat customer that can be extended into more markets and into more than just coffee. And I believe that this moat is sustainable under the right leadership team that understands that Starbucks delivers an experience that extends far beyond just selling coffee. The sustainability of the moat is predicated on continued investment to elevate the store experience and thus drive pricing power. Management has demonstrated a willingness and enthusiasm to invest and has ample runway to do so while also rewarding shareholders with share repurchases.

How big tech is going after your health care

Now, as consumers, medical centers and insurers increasingly embrace health-tracking apps, tech companies want a bigger share of the more than $3 trillion spent annually on health care in the United States, too. The Apple Heart Study reflects that intensified effort.

Each tech company is taking its own approach, betting that its core business strengths could ultimately improve people’s health — or at least make health care more efficient. Apple, for example, has focused on its consumer products, Microsoft on online storage and analytics services, and Alphabet, Google’s parent company, on data.

Last year, Facebook made it more appealing for pharmaceutical companies to advertise their medicines on the platform by introducing a rolling scroll feature where drug makers can list their drug’s side effects in an ad. Such risk disclosures are required by federal drug marketing rules.


Western Digital, Nvidia on board with ‘RISC-V,’ so pay attention, says Benchmark

Any investor interested in learning how adoption of RISC-V stands to disrupt the CISC and RISC processor domains, including discrete processors and/or processor IP (cores and architectures) embedded within simple MCUs as well as advanced ASICs. Additionally, RISC-V stands to disrupt R&D development roadmaps for merchant and captive SoC companies. For example, if Western Digital truly intends to adopt RISC-V in storage products, Marvell will need to reconsider usage of Arm cores. This could lower the upfront licensing and royalty costs for Marvell; however, it may require a revamping of Marvell’s storage controller design flow. Processor IP companies such as Arm Holdings, Synopsys, Cadence Design, Imagination Tech and even CEVA, Inc. could see an impact.

China removes 1,400 baby formula products from shelves

The regulations, effective Jan. 1, require factories making formula to register those products with China’s Food and Drug Administration and pass safety inspections. Plants are limited to working with three brands, and those brands can make only three different products each. China’s FDA has approved 940 infant-formula products from 129 factories so far, the agency said. That compares with more than 2,300 formulations available to parents before Jan. 1.

That vaulted Nestle, Danone and Reckitt Benckiser Group Plc into the top spots in the $20 billion market, according to Euromonitor International.

Capturing those families will be crucial. With the relaxation of China’s one-child policy, Reckitt Benckiser anticipates about 20 million babies being born annually, which could trigger an annual growth rate of at least 7 percent in the infant-formula category during the next five years, said Patty O’Hayer, a spokeswoman. The company bought Mead Johnson for $16.6 billion last year, and its Enfa and Enfinitas brands were approved for sale. Asia generated half of the Enfa lineup’s $3.7 billion in sales for 2016.

The Paris-based company wants to deploy technology such as laser printing to make tampering more difficult and QR codes to ensure traceability of a product back to the factory — moves intended to assure Chinese parents concerned about food safety.

Cancer deaths fall to lowest rate in decades

While a number of breakthrough, high-cost drugs have improved the outlook for people with some deadly cancers, the biggest cause of the decrease in deaths is that Americans are smoking less. The report found decreased smoking rates, and improved detection and treatment, have led to sharp declines in the rate of lung, breast, prostate and colorectal cancer deaths.

How blockchain technology is redefining trust

‘Regulators will like that blockchain-based transactions can achieve greater transparency and traceability– an “immutable audit trail”,’ Masters says. In other words, it could help eliminate the kinds of fraud that come from cooking the books.

How do typical loans work? A bank assesses the credit score of an individual or business and decides whether to lend money. The blockchain could become the source to check the creditworthiness of any potential borrower, thereby facilitating more and more peer‑​to‑​peer financing.

Consider traditional accounting, a multi-billion industry largely dominated by the ‘big four’ audit firms, Deloitte, KPMG, Ernst & Young, and PwC. The digital distributed ledger could transparently report the financial transactions of an organization in real time, reducing the need for traditional accounting practices. And that is why most major players in the financial industry are busy investing significant resources into blockchain solutions. They have to embrace this new paradigm to ensure it works for, not against, them.

In the patent, Goldman describes SETLcoin as having the potential to guarantee ”nearly instantaneous execution and settlement“ for trades. It would mean all the capital the bank is required to keep in reserve, to hedge against the risk of transactions if they don’t settle, would be freed up.

The blockchain raises a key human question: How much should we pay to trust one another? In the past year, I’ve paid my bank interest and fees, some hidden, to verify accounts and balances so that I could make payments to strangers. I’ve spent thousands of dollars on lawyers to draw up contracts because I am not quite sure how another person will behave (and to sort out a few incidents where trust broke down). I’ve paid my insurance company to oversee the risk around my health, car, home, and even life. I’ve paid an accountant to reconcile an auditing issue. I’ve paid an estate agent tens of thousands of dollars essentially to stand between me, the prospective buyer, and the current owner to buy a house. It would seem we pay a lot for people to lord over our lives and double-check what’s happening. All these ‘trusted intermediaries’ are part of the world of institutional trust that is now being deeply questioned.

Today, it is circa 1993 for blockchain technologies. Even though most people barely know what the blockchain is, a decade or so from now it will be like the internet: We’ll wonder how society ever functioned without it. The internet transformed how we share information and connect; the blockchain will transform how we exchange value and whom we trust.


Bitcoin-is-Worse-is-Better

It’s not the decentralized aspect of Bitcoin, it’s how Bitcoin is decentralized: a cryptographer would have difficulty coming up with Bitcoin because the mechanism is so ugly and there are so many elegant features he wants in it. A cryptographer’s taste is for cryptosystems optimized for efficiency and theorems; it is not for systems optimized for virulence, for their sociological appeal. Centralized systems are natural solutions because they are easy, like the integers are easy; but like the integers are but a vanishingly small subset of the reals, so too are centralized systems a tiny subset of decentralized ones. It may be that Bitcoin’s greatest virtue is not its deflation, nor its microtransactions, but its viral distributed nature; it can wait for its opportunity. If you sit by the bank of the river long enough, you can watch the bodies of your enemies float by.

Gyms ditch machines to make space for free weights

In recent years the 420-location chain has scaled back cardio and weight machines to 50% of floor space from about 66%. The gym devotes the other half of floor space to free weights and functional training, which includes things like kettlebell swings and body-weight exercises with TRX suspension straps. It has also expanded its studio group-exercise classes.

“I prefer to do classes, because the teacher pushes me farther than I would push myself,” she says. “I get bored on cardio machines or on the weight machines.”

The shift away from machines is even more pronounced overseas. In 54 gyms of varying price levels in the U.K., members’ time spent on cardio machines dropped 7% between 2013 and this year, even as the total number of gym visits increased, according to an analysis from Edinburgh-based tracking firm GYMetrix.

The Remarkable Early Years of Warren Buffett (Part 1)

The risks of buying a home that’s too big

“The biggest house isn’t necessarily the best house or even the best investment. An older, smaller home with a shorter commute, bigger lot or greater remodel potential may appreciate more. In fact, many fancy new homes can lose value quickly if a developer builds newer homes nearby, while older areas may have more enduring land value.”

“You want enough space to live comfortably, but you don’t want to heat, clean and pay taxes on space you aren’t utilizing.”

Long-term returns. The money saved in buying a right-size home could pay dividends in the future—literally. A $20,000 savings each year over the life of a 30-year mortgage could result in a nearly $1.2 million nest egg if invested in a stock market portfolio earning 4% a year, Ms. Adam says. The annual savings, when compounded over time, is likely to exceed the appreciation in your home’s value over the term of the mortgage.