Curated Insights 2019.10.04

There are no secrets

The biggest sign that an industry’s experts are not truly experts is when the industry has a large variance in its popular opinions. For example, if some people believe that you should do X and another group believe that you should not do X, then that field is likely not well understood. I am not saying that there are no experts in investing or diet/nutrition, just that a large variance suggests that the experts know less than what we might initially perceive.

Besides variance of opinion, the other thing to look out for are “simple” or “easy” solutions to these complex problems. Humans have been trying to solve certain kinds of problems (i.e. investing, health, etc.) for thousands of years, so you should be skeptical of anyone who claims to have a simple solution. Yes, some people will have useful tips, but no one person will have all the answers. And remember, what worked for them may not work for you.

BlackRock, Tencent tie-up is a match made in Wall Street

Tencent’s LiCaiTong wealth management platform already has 800 billion yuan ($112 billion) in aggregated assets, making the social media company a major financial institution in its own right. And let’s not forget the trillions of yuan that sloshes through the Weixin Pay system every year.

Southeast Asia’s internet economy to top $100 billion this year

Southeast Asia’s internet economy is on track to exceed $100 billion this year before tripling by 2025, becoming one of the world’s fastest-growing arenas for online commerce thanks to a youthful population increasingly comfortable with smartphones.

The value of online transactions in areas from internet retail to car-hailing should reach $300 billion by 2025, fueled by an existing population of 360 million online users, according to a research report by Google, Temasek Holdings Pte and Bain & Co. The region, home to ride-hailing Grab and Alibaba Group Holding Ltd.’s e-commerce site Lazada, includes four countries — Thailand, Philippines, Indonesia and Malaysia — in the top 10 globally in terms of time spent by users online, the study showed.

If you aren’t rich by 45, you might as well give up

For the rich and poor alike, the economists found that “the bulk of earnings growth” happens in the first 10 years of work, typically between the ages of 25 and 35. During the next decade of their career, men can expect smaller raises overall.

After 45, those in the bottom 90 percent of lifetime earners see their earnings decline as a group, in part because people often start cutting back their hours around that time, especially if they do manual labor for a living. Meanwhile, even 1 percenters only see relatively minor pay bumps after middle age.

Curated Insights 2019.05.31

China, leverage, and values

This is the true war when it comes to technology: censorship versus openness, control versus creativity, and centralization versus competition. These are, of course, connected: China’s censorship is about control facilitated by centralization. That, though, should not only give Western tech companies and investors pause about China generally, but should also lead to serious introspection about the appropriate policies towards our own tech industry. Openness, creativity, and competition are just as related as their counterparts, and infringement on any one of them should be taken as a threat to all three.

Long Zillow. Short real estate agents?

Return on homes sold before interest expense (4-5% target):
$255,000 x 4% = $10,200 per house x 60,000 houses = $612 million.

Adjusted EBITDA before adjacent opportunities (2-3% target):
$255,000 x 2% = $5,100 per house x 60,000 houses = $306 million.

Their email says something like this:

Mr. Prescott,

We noticed you have looked at this house on 523 Elm St. seven times over the past month. Great news! This house just became part of our inventory😁

We are prepared to offer you $275,000 for you current house.

We will sell you 523 Elm St. for $315,000.

Since you have $100,000 of equity in your current house (they know this because they financed it), we are prepared to offer you a 15-year mortgage for $215,000 at a 3.5% interest rate.

Your TOTAL out-of-pocket expenses for this transaction will be $4,300 (people like certainty; moving will $100 dollar you to death).

In addition, here are three dates we can move you out of your current house, and into your new house.

Attached are some repairs we think this house will need and what they will cost. If you choose to go forward with any of them, we will proceed with the repairs, and the costs will be rolled into your mortgage at no additional out-of-pocket cash for you.

This offer will expire in 72 hours.

Again, your total OUT-OF-POCKET cash, should you accept this offer, will be $4,300 dollars. And not a penny more.

If you would like proceed, just click “Accept this Offer” and one of our agents will be in touch with you shortly…

Cordially,
Future Zillow

The inside story of why Amazon bought PillPack in its effort to crack the $500 billion prescription market

Spending on U.S. prescription medications is approaching $500 billion a year and growing up to 7% annually, according to IQVIA, a provider of health data. Roughly 60% of American adults have at least one chronic illness, such as heart disease, cancer or diabetes, and 40% have two or more, according to the Centers for Disease Control and Prevention.

The retail drug market for prescriptions has been dominated by large pharmacy chains, including CVS and Walgreens, and independent pharmacies, which all count on a few middlemen known as pharmacy benefit managers (PBMs) to negotiate prices, as well as a handful of large drug distributors.

Field notes: Highlights from Huawei

Huawei has about 700 mathematicians, 800 physicists, 120 chemists, six or seven thousand basic research experts, and more than 60,000 engineers. We have compiled more than 15,000 research experts to turn capital investment into knowledge. We have more than 60,000 practical personnel to develop products and turn that same knowledge back into capital [into revenue]. We have always supported scientists outside the company to conduct research.

Curated Insights 2019.04.05

The risk of low growth stocks: Heighten risk to the best companies

Most simply, ROIC measures how many incremental dollars of earnings a company earns by reinvesting their earnings. As a simple illustration, a company with an average 10% ROIC needs to invest 50% of their earnings to grow 5% (10%*50%=5%). A company with a 50% ROIC only needs to reinvest 10% of earnings to grow 5% (50%*10%=5%). In the former case, $0.50 of every dollar of earnings is not needed to fund growth, while in the latter case $0.90 is not needed to fund growth. This means that the higher ROIC company will generate 80% more free cash flow than the average ROIC company making the company 80% more valuable. This is why we focus on ROIC in our analysis. High ROIC businesses are significantly more valuable than average ROIC companies even when they produce the same level of growth.

Sony’s streaming service Crackle sells majority stake to Chicken Soup for the Soul

The transfer of ownership for Crackle, however, arrives at a time when ad-free streaming services like this are seeing newfound interest, with Amazon’s launch of IMDb’s FreeDive, Roku’s The Roku Channel, Walmart’s Vudu, Viacom’s new addition Pluto, Tubi and others now making gains.

As part of the deal, Sony will contribute to the new venture its U.S. assets, including the Crackle brand, user base and ad rep business, according to The Hollywood Reporter. It also will license to Crackle Plus movies and TV shows from the Sony Pictures Entertainment library, as well as Crackle’s original programming, like its shows “Start Up” and “The Oath,” for example.

CSS Entertainment will bring six of its ad-supported networks — including Popcornflix, Popcornflix Kids, Popcornflix Comedy, Frightpix, Espanolflix and Truli, plus its subscription service Pivotshare — to Crackle Plus.

The combination will lead Crackle Plus to become one of the largest ad-supported video-on-demand platforms in the U.S., the companies claim, with nearly 10 million monthly active users and 26 million registered users. The new service will also have access to more than 38,000 combined hours of programming, more than 90 content partnerships and more than 100 networks.

Andreessen Horowitz is blowing up the venture capital model (again)

So Andreessen Horowitz spent the spring embarking on one of its more disagreeable moves so far: The firm renounced its VC exemptions and registered as a financial advisor, with paperwork completed in March. It’s a costly, painful move that requires hiring compliance officers, audits for each employee and a ban on its investors talking up the portfolio or fund performance in public—even on its own podcast. The benefit: The firm’s partners can share deals freely again, with a real estate expert tag-teaming a deal with a crypto expert on, say, a blockchain startup for home buying, Haun says.

And it’ll come in handy when the firm announces a new growth fund—expected to close in the coming weeks, a source says—that will add a fresh $2 billion to $2.5 billion for its newest partner, David George, to invest across the portfolio and in other larger, high-growth companies. Under the new rules, that fund will be able to buy up shares from founders and early investors—or trade public stocks. Along with a fund announced last year that connects African-American leaders to startups, the new growth fund will give Andreessen Horowitz four specialized funds, with more potentially to follow.

Curated Insights 2019.02.22

“Hollywood is now irrelevant,” says IAC Chairman Barry Diller

“Netflix has won this game. I mean, short of some existential event, it is Netflix’s. No one can get, I believe, to their level of subscribers, which gives them real dominance.”

And that includes its closest rival Amazon Prime, which isn’t designed to bid as aggressively on tomorrow’s media stars as Netflix is. “Amazon’s model is saying, ‘If you join Prime, we’re giving you things,’” Diller said. “‘So our job is to get you to join Prime. If we can get you to do that by giving you Black Panther, or whatever, or The Marvelous Mrs. Maisel, then great.’ But that model, to people in the entertainment business, is like, ‘Oh my god, how did that happen?’”


Tollymore Investment Partners’ investment thesis on Trupanion

TRUP is vertically integrated; it owns its insurance subsidiary and is responsible for acquiring and servicing existing customers as well as underwriting their insurance. TRUP estimates this vertical integration has eliminated frictional costs of c. 20% of revenues. These economic savings have been donated to consumers in the form of higher claims payout ratios. TRUP’s strategy has therefore been to sacrifice the near-term margin upside of this cost advantage in the pursuit of a larger and stickier customer base and subscription revenue pool. This cost advantage does not manifest itself in lower prices, but rather the highest sustainable expenditure on vet invoices per dollar of premiums.

TRUP has built a database over 15 years using 7.5mn pet months of information and > 1mn claims; it has segmented the market into 1.2mn price categories in order to more accurately underwrite insurance costs for a given pet. Of course, determining the point at which the marginal returns on incremental data diminish is difficult, but according to the CEO it would take a competitor 13 years to replicate this data asset. Although Nationwide is larger by number of pets enrolled, its data are likely to be less comprehensive for two reasons: (1) a lack of data for conditions not covered by policies, such as hereditary and congenital diseases, and (2) pricing categories by state rather than zip code, even though the cost of vet care can vary widely within states. TRUP considers its ability to accurately estimate the costs of pet healthcare costs by granular sub- categories crucial to its leading value proposition. This allows for the provision of more relevant products for the customer.

The addressable market is large and underpenetrated relative to other developed markets. The differences in these other markets are not demographic, social or economic, but rather (1) the length of time comprehensive pet insurance has been available, (2) the value proposition in the form of higher claims payments as a ratio to premiums (higher loss ratios) and (3) vet vs. direct to consumer distribution models. Pet insurance companies in the US typically do not cover hereditary and congenital conditions, which are the forms of illness most likely to be suffered by cats and dogs, they increase rates when claims are made, they impose payout limits, and pay claims according to an estimated cost schedule rather than actual vet invoices. TRUP is different in all these respects and as such expects to grow the addressable market in North America to greater than 1% penetration. In any case, it appears to be the case that TRUP’s value proposition is driving adoption in North America.

The unit economics associated with the pursuit of this opportunity to grow the company’s assets are attractive. The cost to acquire a pet is c. $150, around 3x the average monthly ARPU. Assuming the current 10% discretionary margin and a six-year average pet life, the IRR on new pets is 30-40%. At a 15% discretionary margin the IRR would be double this. I estimate that both ARPUs and discretionary margins would need to decline by 20-25% to render reinvestment in pet acquisition a capital destructive pursuit. This would contradict the economic reality of a market in which pet healthcare costs are increasing mid-single digits as new technologies and treatments are ported over from human healthcare, and the scalability of the business model.

Purchases with plastic get costlier for merchants—and consumers

Merchants paid an estimated $64 billion in Visa and Mastercard credit and debit interchange fees last year, according to new data from an industry publication, the Nilson Report. That is up 12% from a year earlier and up 77% from 2012.

Other fees are on the rise, as well. Visa, the largest U.S. card network, is increasing several fees in April, according to people familiar with the matter. Unlike interchange fees that are paid to card issuers, these fees are collected by Visa.

Visa raised its “credit-card assessment fee” this year by 0.01% for most credit-card purchases made in the U.S. While seemingly small on a percentage or flat-fee basis, the increased fees that Visa will put in place during the first four months of the year are expected to cost U.S. merchants at least an additional $570 million through April 2020, according to estimates by merchants-payments consulting firm CMSPI.

But network fees aren’t the only additional charges merchants face. There are also other fees charged by firms that process merchants’ card transactions. Those, which include the network fees, totaled $14.8 billion on Visa and Mastercard debit and credit transactions in 2018, up 10% from a year earlier and 70% from 2012, according to the Nilson Report.


MSG says the Knicks aren’t for sale. It’s a good time to invest in sports either way.

That $5 billion is a big number, 25% higher than the recent $4 billion valuation by Forbes. And $5 billion amounts to more than $200 per share, or about 71% of MSG’s current stock price. Just because the number is large doesn’t mean it isn’t realistic. Don’t forget the Clippers were sold to former Microsoft (MSFT) CEO Steve Ballmer for $2 billion in 2014. That year, before the sale was announced, Forbes valued the Knicks at $1.4 billion and the Clippers didn’t crack Forbes top-10 most valuable NBA franchises.

Live TV content is part of the reason the value of sports franchises have swelled. Live content is becoming increasingly more valuable to media outlets like traditional networks and streaming companies. But other factors are also at play. Sports betting is another important avenue for franchise owners to generate brand-new streams of cash. “I think everyone who owns a top four professional sports team just basically saw the value of their team double” Dallas Mavericks owner Mark Cuban said in 2018, after the U.S. Supreme Court cleared the way for legalized sports betting in states other than Nevada.

If the Knicks are sold, MSG would be left with the New York Rangers, the WNBA’s New York Liberty, the Hartford Wolf Pack of the American Hockey League, and the Westchester Knicks of the NBA’s developmental league. In addition to Madison Square Garden itself, MSG also owns the Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum, the Chicago Theatre, and the Wang Theatre.

Curated Insights 2018.12.21

Investing ideas that changed my life

If something has a chance of either destroying you or making you very wealthy and you don’t know how to measure what that chance is, it’s understandable that people default to high levels of credulity.

You can’t believe in risk without also believing in luck, because they are fundamentally the same thing—an acknowledgment that 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. But the path of least resistance is to be keenly aware of risk when it affects you, and oblivious to luck when it helps you. Investors adjust returns for risk; never for luck. Companies disclose known risks in their annual reports; lucky breaks are rarely mentioned. The danger is that experiencing risk reduces confidence when it should merely highlight reality, which can make future decisions more conservative than they ought to be. Luck increases confidence without increasing ability, which makes people double down with less room for error than before. Realizing that luck and risk are ever-present and normal makes you accept that not everything is in your control, which is the only way to identify whatever is in your control.

If you think the world is all art, you’ll miss how much stuff is too complicated to think about intuitively. But if you think the world is all science, you’ll miss how much people like to take shortcuts, believe only what they want to believe, and have to deal with stuff that is too complicated for them to summarize in a statistic. Another way to think about this: Investing is not physics, which is guided by cold, immutable laws. It’s like biology, guided by the messy mutations and accidents of evolution, constantly adapting and sometimes defying logic.

“How long will this remain important given my strategy and time horizon?”


The dynamics of network effects

So how can entrepreneurs and founders navigate this era of seemingly diminishing network effects? The trick is to know what your network effects look like today, but also project how they’ll evolve over time. To that end, you’ll need to understand three aspects of your company and how they could change going forward: 1) your value proposition, 2) your users/inventory, and 3) your competitive ecosystem. Otherwise you could get caught flat-footed, claiming that network effects are dead.

Early on, more friends in Frank groups meant more demand and more liquidity, which created a bigger incentive for people to join those groups. But once a group had more than 7 people, they became less likely to lend or borrow: turns out people only have ~7 friends/family members they have that level of trust with! The network effects in this case went from positive to negative as an individual’s network outgrew the value proposition. This pattern has also held true for a number of other highly social products.

Platforms/marketplaces with more differentiated inventory have stronger and longer-lasting network effects, because they have a diversity of inventory that suits the unique preferences of customers (while maintaining just-enough substitutability across that inventory as well). For example, AirBnB can show users every iteration of lodging from $225-$325/night in Los Angeles, which overlaps with someone else’s search for something that costs $150-$250 and has a both a balcony and a hot tub. The platform is therefore more valuable on both sides of the marketplace than a site that just shows a commoditized set of standard and executive rooms. The network effects remain strong not only because it reaches a base level of liquidity across all these different types of inventory (making them valuable to more users), but because it also continues to see increasing returns with new supply.

When you forecast out your network effects — and more importantly, your growth strategy for acquiring and engaging more users — you will need to pay attention to the incremental users you’re likely to attract. Are they network “contaminants”, “neutrals”, or “contributors”? For a social network, adding a troll that disengages other users is a pollutant who removes value. Adding a lurker is neutral since that person doesn’t add or subtract any value from the network. Adding a great content producer contributes an enormous amount of value to the network. So, making sure to incent the users you want while disincenting the ones you don’t want, is key. This is why most great platforms also invest heavily in curation mechanisms to screen and remove bad inventory/users (e.g., Wikipedia’s editors, Airbnb’s reviews/onboarding, etc.). Unfortunately, these screening mechanisms don’t always work and sometimes the cost of finding strong contributors becomes very high, so the calculus of growth relative to cost matters a lot here.

While network effects businesses tend to be more defensible at scale, they are not immune to competition. But for these types of businesses it’s not just a matter of figuring out who your direct competitors are — you also need to think about the network overlap. If someone else has a similar network to yours, there’s always existential risk they’ll move into your market. Because they have a similar network already, they’ll more easily be able to enter your space (Instagram’s foray into Snapchat-like disposable “Stories” is a good example of this). This is also true where the competition may already have registered a superset of your network (e.g., DoorDash and Uber Eats; Didi and Uber in China).

The increasing speed of product iteration, the pace at which networks can scale, and the ease with which competitors can get started has therefore dramatically changed how we project network effects in businesses. Instead of winner-take-all markets where early movers may have once had a seemingly lasting advantage, network effects change more quickly than ever. Especially where specific factors — an asymptotic value proposition, network overlap, increasing number of contaminants, etc. — can lower the platform’s ability to generate a sustainable network effect in the future.

How much is social media worth? Estimating the value of Facebook by paying users to stop using it

As noted previously, Facebook reached a market capitalization of $542 billion in May 2018. At 2.20 billion active users in March 2018, this suggests a value to investors of almost $250 per user, which is less than one fourth of the annual value of Facebook access from any of our samples. This reinforces the idea that the vast majority of benefits of new inventions go not to the inventors but to the users. Further, our results provide evidence that online services can provide tremendous value to society even if their contribution to GDP is minimal. If the billions of people who use Facebook and other free online services derive anything close to $1000 per year in benefits, the productivity slowdown cited by Solow and others may not be reflected in a slowdown in the growth rate of welfare measures like consumer surplus. Many observers have commented on the difficulties of measuring productivity growth in great technological change. While our current study does not offer a solution that can be broadly applied to address this challenge, it does present a methodology and results that provide important insight into the scale of the issue when considering the online revolution of our current era.

Concerns about data privacy, such as Cambridge Analytica’s alleged problematic handling of users’ private information, which are thought to have been used to influence the 2016 United States presidential election, only underscore the value Facebook’s users must derive from the service. Despite the parade of negative publicity surrounding the Cambridge Analytica revelations in mid-March 2018, Facebook added 70 million users between the end of 2017 and March 31, 2018. This implies the value users derive from the social network more than offsets the privacy concerns.


Alibaba stock poised to return 200%, advisor says

Alibaba has a unique business model where it operates solely as a platform, rather than a middle man. The company doesn’t have to purchase inventory, provide logistics, or distribute product – it simply collects fees from merchants for advertising and commissions for completed transactions. This asset light model has allowed BABA to compound earnings more than 43% per year for the last 5 years with very little incremental capital.

The GMV for BABA in the last twelve months was a staggering $4.8 trillion yuan, or $768B USD. This towers over Amazon’s $186B or Walmart’s $495B. GMV is nearly 7% of the GDP of China. In the last 5 years GMV has compounded at an annual growth rate of 29% per year.

Core Commerce is the largest and most profitable division of BABA representing 71% of total revenue and 100% of owner earnings. This division generates revenue by selling advertising to merchants and collecting commissions ranging from 0.3% to 5.0% on sales that occur across BABA’s e-commerce platforms. In the last 5 years revenue from the Core Commerce division has compounded at a rate of 43% per year.

Cloud Computing provides individuals, merchants, and businesses across China online access to the vast computing resources of BABA’s datacenters. Alibaba Cloud offers a complete suite of cloud services, including elastic computing, database, storage, network virtualization services, large scale computing, security, management and application services, big data analytics, and more. Alibaba Cloud has grown at an average pace of more than 100% in the last 5 years. While the business currently does not generate owner earnings due to the aggressive investment in market share, we are confident that the division will be highly profitable in the future.

Digital Media & Entertainment offers an online platform, Youku, where users can watch TV shows, movies, and other content. It is similar to the business model of Netflix, where revenue is generated by selling subscriptions and advertising. While both revenue and daily average subscriber growth has been impressive averaging more than 100% per year for the last 3 years, the business loses money annually due to the high cost of purchasing content. Unlike Alibaba Cloud, which we are confident will be profitable based on comparisons to AWS and Google Cloud, we are less confident in the future profitability of Youku. Comparable companies, like iQiyi and Netflix, have never generated positive cash flow for owners and the path to a successful business model is not presently clear. We are hopeful that this business division will be spun off as a standalone business in the upcoming years.

“As a result of our broad value propositions to consumers, we have seen increased engagement over time. The longer consumers have been with us, the larger numbers of orders they tend to place, across a more diverse range of product categories, and the more they tend to spend on our China retail marketplaces. For example, in the twelve months ended March 31, 2018, consumers who have been with us for approximately five years placed an average of 132 orders in 23 product categories with average spending of approximately RMB12,000 in terms of GMV, whereas consumers who have been with us for approximately one year placed an average of 27 orders in 6 product categories with average spending of approximately RMB3,000 in terms of GMV. In the twelve months ended March 31, 2018, the average annual active consumer on our China retail marketplaces placed 90 orders in 16 product categories with average spending of approximately RMB9,000 in terms of GMV.”

The business case for serverless

The case for serverless starts with a simple premise: if the fastest startup in a given market is going to win, then the most important thing is to maintain or increase development velocity over time. This may sound obvious, but very, very few startups state maintaining or increasing development velocity as an explicit goal. “Development velocity,” to be specific, means the speed at which you can deliver an additional unit of value to a customer. Of course, an additional unit of customer value can be delivered either by shipping more value to existing customers, or by shipping existing value—that is, existing features—to new customers.

Whereas a ‘normal’ cloud server like AWS’s EC2 offering had to be provisioned in advance and was billed by the hour regardless of whether or not it was used, AWS Lambda was provisioned instantly, on demand, and was billed only per request. Lambda is astonishingly cheap: $0.0000002 per request plus $0.00001667 per gigabyte-second of compute. And while users have to increase their server size if they hit a capacity constraint on EC2, Lambda will scale more or less infinitely to accommodate load — without any manual intervention. And, if an EC2 instance goes down, the developer is responsible for diagnosing the problem and getting it back online, whereas if a Lambda dies another Lambda can just take its place.

Although Lambda—and equivalent services like Azure Functions or Google Cloud Functions—is incredibly attractive from a cost and capacity standpoint, the truth is that saving money and preparing for scale are very poor reasons for a startup to adopt a given technology. Few startups fail as a result of spending too much money on servers or from failing to scale to meet customer demand — in fact, optimizing for either of these things is a form of premature scaling, and premature scaling on one or many dimensions (hiring, marketing, sales, product features, and even hierarchy/titles) is the primary cause of death for the vast majority of startups. In other words, prematurely optimizing for cost, scale, or uptime is an anti-pattern.

Herein lies the magic of using managed services. Startups get the beneficial use of the provider’s code as an asset without holding that code debt on their “technical balance sheet.” Instead, the code sits on the provider’s balance sheet, and the provider’s engineers are tasked with maintaining, improving, and documenting that code. In other words, startups get code that is self-maintaining, self-improving, and self-documenting—the equivalent of hiring a first-rate engineering team dedicated to a non-core part of the codebase—for free. Or, more accurately, at a predictable per-use cost. Contrast this with using a managed service like Cognito or Auth0. On day one, perhaps it doesn’t have all of the features on a startup’s wish list. The difference is that the provider has a team of engineers and product managers whose sole task is to ship improvements to this service day in and day out. Their exciting core product is another company’s would-be redheaded stepchild.

One day, complexity will grow past a breaking point and development velocity will begin to decline irreversibly, and so the ultimate job of the founder is to push that day off as long as humanly possible. The best way to do that is to keep your ball of mud to the minimum possible size— serverless is the most powerful tool ever developed to do exactly that.

Huawei ban casts shadow over $100bn economic sphere

Huawei reported sales of 603.62 billion yuan ($87.4 billion at current rates) last year — not far off from Microsoft and Google parent Alphabet, although less than half as much as Apple. Its two biggest telecom equipment rivals, Nokia and Ericsson, had net sales of 23.1 billion euros ($26.1 billion) and 201.3 billion krona ($22.2 billion), respectively, last year. It ranks as the world’s top seller of base stations for wireless networks with a 28% share, the No. 2 maker of smartphones and routers, and the fourth-largest server manufacturer.

Privately owned Huawei spent $14 billion on outside procurement of semiconductors alone last year. Much of this came from American companies, with $1.8 billion in purchases from Qualcomm and $700 million from Intel, according to Chinese media.

Hikvision, which is more than 40% controlled by state-owned companies, is the world’s leading maker of security cameras and offers image-analysis technology powered by artificial intelligence. Privately run Hytera boasts world-leading production capacity for specialized wireless communications technology used by police and the military. Hikvision and Hytera in recent years have both acquired foreign peers — something that Beijing normally puts strict limits on — to expand their technological capabilities and overseas presence.

LVMH inks $2.6 billion deal to buy ‘21’ club operator Belmond

The acquisition is one of LVMH founder Bernard Arnault’s biggest, rivaling the purchases of Bulgari and Loro Piana. It comes as consumers shift spending toward trips, health clubs, restaurants and entertainment and interest in shopping malls dwindles.

The acquisition addresses another challenge facing LVMH and rivals Kering SA and Richemont. They’ve snapped up so many of the world’s leading brands that there are few prominent leather and couture labels left to buy. The Louis Vuitton owner, formed through a merger with Champagne and cognac maker Moet Hennessy, has already expanded into perfume, watches, jewelry and cosmetics retail. Prominent remaining independents like Chanel and Hermes have shown little inclination to sell.

The deal will expand the French company’s high-end hospitality offerings. LVMH formed a hotel management group in 2010 to oversee its operations in the sector, which include properties under the Cheval Blanc name in locations like the Courchevel ski resort in the French Alps. LVMH’s Bulgari jewelry brand has six hotels, including one in Shanghai that opened in July. It plans to open hotels in Moscow, Paris and Tokyo in the next four years.

Belmond, which used to be known as Orient-Express Hotels, owns or has stakes in more than 30 high-end hotels around the world, from St. Petersburg to Anguilla in the Caribbean. In addition to the ‘21’ Club power restaurant in Manhattan, its stable of luxury properties includes a cruise line in France, a London-to-Venice train line and safari camps in Botswana.

What straight-A students get wrong

The evidence is clear: Academic excellence is not a strong predictor of career excellence. Across industries, research shows that the correlation between grades and job performance is modest in the first year after college and trivial within a handful of years. For example, at Google, once employees are two or three years out of college, their grades have no bearing on their performance.

Academic grades rarely assess qualities like creativity, leadership and teamwork skills, or social, emotional and political intelligence. Yes, straight-A students master cramming information and regurgitating it on exams. But career success is rarely about finding the right solution to a problem — it’s more about finding the right problem to solve.

Getting straight A’s requires conformity. Having an influential career demands originality. In a study of students who graduated at the top of their class, the education researcher Karen Arnold found that although they usually had successful careers, they rarely reached the upper echelons. “Valedictorians aren’t likely to be the future’s visionaries,” Dr. Arnold explained. “They typically settle into the system instead of shaking it up.”

If your goal is to graduate without a blemish on your transcript, you end up taking easier classes and staying within your comfort zone. If you’re willing to tolerate the occasional B, you can learn to program in Python while struggling to decipher “Finnegans Wake.” You gain experience coping with failures and setbacks, which builds resilience.

Employers: Make it clear you value skills over straight A’s. Some recruiters are already on board: In a 2003 study of over 500 job postings, nearly 15 percent of recruiters actively selected against students with high G.P.A.s (perhaps questioning their priorities and life skills), while more than 40 percent put no weight on grades in initial screening. Straight-A students: Recognize that underachieving in school can prepare you to overachieve in life. So maybe it’s time to apply your grit to a new goal — getting at least one B before you graduate.

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.