Curated Insights 2019.09.06

Where the opportunities are in regulated marketplaces: Managed marketplaces

The licensing of workers was more critical in a “pre-internet” world, since licenses established consumer trust by signaling the skills or knowledge required to perform a job. But today, digital platforms can mitigate the need for (some) licensing by establishing trust and ensuring quality through other means — such as user reviews, platform requirements, and other mechanisms like pre-vetting and guarantees.

“Managed marketplaces” models in particular can be helpful in establishing user trust, because they intermediate parts of the service delivery, adding value by taking on functions like identifying high-quality providers, standardizing prices, and automating matching between demand and supply. As scrutiny around safety for marketplaces continues to rise, the importance of trusted labor becomes even more significant. In childcare, for instance, people don’t want to just see a list of all possible caregivers — they want to know with certainty that the providers they’re hiring are trustworthy and qualified, and a managed marketplace can capitalize on this user need by thoroughly vetting all supply.

Managed marketplaces can greatly mitigate the need for licensing because users trust the marketplace itself, particularly on the highly managed side of the spectrum. Such platforms can enable high-quality, but unlicensed, suppliers to offer services alongside licensed providers — and in doing so, promote entrepreneurship and alleviate supply constraints.


The Big Short’s Michael Burry explains why index funds are like subprime CDOs

The dirty secret of passive index funds — whether open-end, closed-end, or ETF — is the distribution of daily dollar value traded among the securities within the indexes they mimic. In the Russell 2000 Index, for instance, the vast majority of stocks are lower volume, lower value-traded stocks. Today I counted 1,049 stocks that traded less than $5 million in value during the day. That is over half, and almost half of those — 456 stocks — traded less than $1 million during the day. Yet through indexation and passive investing, hundreds of billions are linked to stocks like this. The S&P 500 is no different — the index contains the world’s largest stocks, but still, 266 stocks — over half — traded under $150 million today. That sounds like a lot, but trillions of dollars in assets globally are indexed to these stocks. The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.

This structured asset play is the same story again and again — so easy to sell, such a self-fulfilling prophecy as the technical machinery kicks in. All those money managers market lower fees for indexed, passive products, but they are not fools — they make up for it in scale. Potentially making it worse will be the impossibility of unwinding the derivatives and naked buy/sell strategies used to help so many of these funds pseudo-match flows and prices each and every day. This fundamental concept is the same one that resulted in the market meltdowns in 2008. However, I just don’t know what the timeline will be. Like most bubbles, the longer it goes on, the worse the crash will be.


Debunking the silly “passive is a bubble” myth

So index funds hold less than 15% of shares in public companies. And according to former Vanguard CEO Bill McNabb, indexing in stocks and bonds globally represents less than 5% of global assets.

When you buy an index fund of the total stock market, you are literally buying the stock market in proportion to the shares held by all active investors. If you sum up the collective holdings of active managers, what you basically get is a market-cap-weighted index. Index fund investors are simply buying what the active investors have laid out for them.

Charley Ellis wrote in his book, The Index Revolution, that indexing accounts for less than 5% of trading, with the remaining 95% or so done by active investors. This will always be the case, no matter the amount of money flowing into index funds.

When an index fund investor sells, they’re technically selling their holdings in direct proportion to their weighting in the index. So there is little market impact involved. Again, index fund investors are simply owning stocks in the proportion that all active investors own stocks. Plus, index funds never lever up your holdings. They never receive a margin call. They don’t put 30% of your holdings in Valeant Pharmaceuticals. And no index fund has ever closed up shop to spend more time with their family.

Why the Periodic Table of Elements Is More Important Than Ever

How Amazon’s shipping empire is challenging UPS and FedEx

Amazon now delivers nearly half of its orders, compared with less than 15% in 2017, according to estimates from research firm Rakuten Intelligence. It is now handling an estimated 4.8 million packages every day in the U.S. … The U.S. Postal Service, once the primary carrier of Amazon parcels, delivers about half the share of packages than it did two years ago.

Asahi’s voracious thirst sees it take crown as king of M&A in Asia

At a news conference in Tokyo this month, Mr Koji said the company would focus on strengthening its three core markets in Japan, Europe and Australia: “That will be our priority and we’ll subsequently consider whether we will do further merger and acquisition deals.”

Suntory, known for its Yamazaki whisky, bought US spirits maker Beam for $16bn in 2014, creating the world’s third-largest spirits maker. Before that, Kirin had made a disastrous foray into Brazil with a $3.9bn acquisition of family-owned Schincariol in 2011.

Asahi went on a buying spree of its own with a $1.3bn acquisition of New Zealand’s Independent Liquor in 2011 and other smaller deals in Australia, China and Malaysia. In the decade before 2016, it spent $3.9bn on 24 outbound deals, according to Dealogic, but none had any serious impact on its balance sheet. Their geographical reach was limited, with its overseas business making up less than 15 per cent of revenues.

Deep dive into the General Electric-Markopolos case – Here: The Baker Hughes accounting

Admittedly, GE has never been at the forefront of conservative accounting application. Looking into the history of the company we can find a couple of examples of quite aggressive representations of its economic situation. But with regard to the Baker Hughes accounting we cannot find anything wrong (but of course, it could be that we missed something). Moreover, the Markopolos report does not come even close of what is necessary to assess the accounting treatment here. We do not want to judge to harshly on the report (with regard to the Baker Hughes accounting) because at least the economics are correct – but also disclosed by GE – but all in all the Markopolos report really seems to be a bit light in accounting from our subjective point of view.

The Amazon is not Earth’s lungs

The Amazon produces about 6 percent of the oxygen currently being made by photosynthetic organisms alive on the planet today. But surprisingly, this is not where most of our oxygen comes from. In fact, from a broader Earth-system perspective, in which the biosphere not only creates but also consumes free oxygen, the Amazon’s contribution to our planet’s unusual abundance of the stuff is more or less zero. This is not a pedantic detail. Geology provides a strange picture of how the world works that helps illuminate just how bizarre and unprecedented the ongoing human experiment on the planet really is. Contrary to almost every popular account, Earth maintains an unusual surfeit of free oxygen—an incredibly reactive gas that does not want to be in the atmosphere—largely due not to living, breathing trees, but to the existence, underground, of fossil fuels.

After this unthinkable planetary immolation, the concentration of oxygen in the atmosphere dropped from 20.9 percent to 20.4 percent. CO2 rose from 400 parts per million to 900—less, even, than it does in the worst-case scenarios for fossil-fuel emissions by 2100. By burning every living thing on Earth. “Virtually no change,” he said. “Generations of humans would live out their lives, breathing the air around them, probably struggling to find food, but not worried about their next breath.”

Why Indonesia is shifting its capital From Jakarta

As well as bursting at its seams, the city is sinking. Two-fifths of Jakarta lies below sea level and parts are dropping at a rate of 20 centimeters (8 inches) a year. That’s mostly down to the constant drawing up of well water from its swampy foundations. Stultifying traffic congestion and polluted air are a daily reality for Jakarta’s 10 million inhabitants. The gridlock costs an estimated 100 trillion rupiah ($7 billion) a year in lost productivity for the greater Jakarta area, known as Jabodetabek, encompassing 30 million people.

Jakarta will keep growing. The population is on course to reach 35.6 million by 2030, helping it topple Tokyo as the world’s most populous city. Since the greater metropolitan area generates almost a fifth of Indonesia’s GDP, Jakarta will continue to be the country’s main commercial hub. There’s a $43 billion plan to sort out the traffic, including a Mass Rapid Transit rail line that opened in 2019. As for Jakarta’s submergence problem, the president is planning a giant wall to keep big waves out.

Better is fragile — different is king

Most of us grew up believing that, to compete, we need to be better than the competition. We need better skills, better players, better résumés. But what happens when your best is no longer good enough? What happens when that amazing software application you just spent beaucoup bucks developing is blindsided by an even better program? One that’s less expensive, to boot?

Better is fragile. It can be trampled in a nanosecond. Attempting to be better puts companies on a hampster wheel, running faster and faster—and in the same direction as everyone else—to keep up. Better is weak.

Different is king. When you can differentiate yourself in the market, you step off the hamster wheel, never to return. You only look back to witness the frenzy your brand is causing in the hamster cage you left behind.

Here’s your choice: Spend a lot of time and money in pursuit of better. Or find what makes you different, and then do it on purpose.


A silent interlude

Warren Buffett hasn’t been reading five newspapers every day for seven decades for no reason. The trick is to find the right balance between exposure to the news while honing the ability to distinguish between news and noise.


Running your trading as a business

Imagine that you are pitching your trading business to a venture capitalist. How will you convince the VC that this is a business worth investing in?

Reasonable investing philosophies

Personal finance > investing, at all income levels, because a good saver who doesn’t invest will be fine but a great investor mired in debt and overspending can be wiped out.

Curated Insights 2018.08.24

Tech firms account for 60% of profit margin growth in the past 20 years

The information technology sector – which contains the bulk of superstar firms – accounts for 60% of the increase in S&P 500 profit margins over the past 20 years, while the “adjacent tech” sector, comprising the health care (including biotech firms) and consumer discretionary sectors (incl. firms such as Booking Holdings and Expedia) accounts for 40% of the rise. It also means the bulk of the market – i.e., all firms ex. tech, healthcare and consumer discretionary – have seen no margin growth at all since 1998.

Dear Elon: An open letter against taking Tesla private

First, as a private company, Tesla will be unable to capitalize on its competitive advantages as rapidly and dramatically as it would as a public company, an important consideration given the network effects and natural geographic monopolies to which autonomous taxi and truck networks will submit. Second, in the private market, Tesla would lose the free publicity associated with your role as the CEO of the public company not only with the bestselling mid-sized premium sedan in the US, but also arguably in the best position to launch a completely autonomous taxi network nationwide in the next few years. Just ask Michael Dell: he wants to lead a public company once again for a reason. Third, you will deprive most of your individual investors of a security to bet on you and your strategy, ceding that opportunity to high net worth and institutional investors. Finally, if you do not take Tesla private, you will be surprised and gratified at investor reaction once they realize and understand the scope and ramifications of your long-term vision and strategies.

Thoughts on Xiaomi’s eighth anniversary and inaugural month as a public company

As of March 2018, Xiaomi already had 38 apps with more than 10 million monthly active users, and 18 apps with more than 50 million monthly active users, including the Mi App Store, Mi Browser, Mi Music, and Mi Video apps. Rather than paying search engines to acquire users, Xiaomi is essentially getting paid for acquiring users through selling its smartphones. This allows Xiaomi to have a negative CAC (customer acquisition cost) for its Internet services.

Another under-appreciated pillar of Xiaomi’s growth is its “ecosystem strategy.” Xiaomi strategically invests in many startups as well as the many Internet services providers they work with, both in China and outside of China. Companies in the Xiaomi ecosystem include SmartMi (air purifiers), Zimi (power banks), Huami (Mi bands), Chun Mi (rice cookers), and 80-plus more. Thanks to these prolific investments, you can find a wide variety of products in any Xiaomi store, from scooters to ukeleles (see below). As a result, every time consumers visit a Xiaomi store, they can find something new, and the frequency of store visits is a lot higher than typical smartphone brands, even Apple.

Ensure the price of the hardware is as low as possible so the company can grow market share and users. Sell the phones online, direct-to-consumer, bypass the middlemen, and past the enormous cost savings to consumers. Overtime, the company will monetize on Internet services.

When Yahoo! Invested in Alibaba (another GGV portfolio company) in 2005, the world had 1 billion Internet users. Now, the world has 3.5 billion Internet users. Over the last 13 years, Alibaba’s valuation increased 100 times from $5 billion to $500 billion. The fact that China was the fastest growing market for Internet users during this period, coupled with Alibaba’s amazing ability to execute, turned the company into a growth miracle. In the next 12-13 years, the world will most likely grow to 5 billion Internet users. The world’s next 1 billion Internet users that will come online in the next decade – via affordable but high-quality smartphones – are outside of the US. They are in the 74 countries that Xiaomi is already in today. Going forward, Xiaomi is very well-positioned to take advantage of the next phase of growth through selling hardware, software, and bundled Internet services, as well as by investing in partner companies in those countries.


Does Tencent Music deserve a Spotify-like valuation?

Tencent Music this year could generate revenue less than half of Spotify’s projected $6 billion. Tencent Music is profitable, which is rare in music-streaming. The firm pulled in roughly two billion yuan ($290 million) in net income last year. Spotify, in contrast, reported a net loss of about $1.4 billion last year, although nearly $1 billion of that was due to a one-time financing charge.

In terms of users, Tencent Music is way bigger than Spotify. Tencent Music operates streaming service QQ Music as well as karaoke and live-streaming music apps Kugou and Kuwo. The three services had a combined 700 million monthly users in China as of September 2017, according to Tencent Music. Tencent Music operates a fourth service, the karaoke app WeSing, which at the end of last year had more than 460 million registered users. By comparison, Spotify had 180 million monthly users and 83 million paid subscribers as of June, the company has said. But Spotify’s ratio of paid versus free users is higher than at Tencent Music, where only a fraction of its Chinese users pay for music.

The secret of Tencent Music’s profitability is virtual goods and cheap music rights. Most of its revenue comes from non-subscription services including karaoke and live-streaming services, where users can pay to send virtual gifts to performers.

Swelling clout of US corporate giants is depressing pay, analysts say

As the economic weight of a small number of highly profitable and innovative “superstar” companies has increased, workers’ slice of the pie has fallen in their industries. This may have contributed to a broader fall in labour’s share of income that has been particularly noticeable in the US since the beginning of the 2000s. At the same time, corporate profitability has surged to record highs. 

Goldman Sachs analysts say rising product and labour market concentration has imposed a drag of 0.25 percentage points on annual wage growth since the early 2000s. They also stress, however, that America’s dreary productivity growth is a bigger problem.

ARK Disrupt Issue 138: GPUs, crypto, fintech, mobility, and disease

Turing will be able to perform graphics, deep learning, and ray tracing operations simultaneously, a first for any processor. The Turing GPU can perform 10 billion operations per second, enabling ray tracing in real time. In addition, it is capable of 125 trillion deep learning operations and 16 trillion graphics operations per second. Nvidia and other chip companies rarely dedicate hardware to a specific algorithm in the absence of a large market opportunity. Nvidia posits that the $2,000 Turing ray tracing GPU will target 50 million artists and designers globally. A 10% hit rate would create a $10 billion market, nearly matching Nvidia’s annual revenue today.

Because 98% of all genetic diseases are polygenic, that is involving more than one gene, the clinical utility of whole genome sequencing (WGS) is taking on new importance. To date, roughly two million whole human genomes have been sequenced. If DNA sequencing costs continue to drop by 40% per year, the number of whole human genomes sequenced should increase at 150% rate per year. As a result, genome-wide association studies should power poly-epigenetic models of disease and result in molecular diagnostic tests which introduce more science into health care decision-making.

Why battling bugs is a booming business, and may be getting bigger

Preventing pest infestations—or mitigating them after the fact—is particularly important for restaurants, hotels, and hospitals. Not only can regulators impose heavy fines or shut down businesses that violate health ordinances, customers who encounter a bug-infested business may shame them on social media. “In the age of customer review apps such as Yelp, businesses are well-aware that a customer report or, worse, photo of a pest infestation can be shared around the internet within minutes and potentially damage their brand,” says Zhu. With reputations at stake, businesses in the food and beverage, hospitality, and health care sectors are especially inclined to hire a pest control company promptly when faced with an infestation. In fact, many commercial customers schedule routine treatments to prevent potential infestations, providing pest control companies with a recurring revenue stream.

The companies best positioned to thrive in this environment are those with access to sufficient capital to acquire or open new locations. Operating an extensive branch network confers a number of competitive advantages, including the opportunity to generate greater brand recognition through cost-effective advertising and the ability to operate with lower average costs due to economies of scale. In recent years, consolidation has been intense in North America, which is still home to about half the world’s pest control companies. In fact, four of the 100 largest pest control companies in the US were acquired in May 2018 alone, two of them by US-based Terminix, and one each by European firms Rentokil and Anticimex.

Despite modern pesticides and the efforts of tens of thousands of companies, pest control remains a Sisyphean task. “It’s easy to kill bugs, but it’s much harder to keep them from coming back,” Zhu says. For the foreseeable future, the bedbugs will continue to bite—and demand for professional pest control services should continue to grow.

Litigation finance offers investors attractive yields

Funds that invest in litigation are on the rise. In the past 18 months some 30 have launched; over $2bn has been raised. Last year Burford Capital, an industry heavyweight, put $1.3bn into cases—more than triple the amount it deployed in 2016. Lee Drucker of Lake Whillans, a firm that funds lawsuits, says he gets calls weekly from institutional investors seeking an asset uncorrelated with the rest of the market—payouts from lawsuits bear no relation to interest-rate rises or stockmarket swings.

Returns are usually a multiple of the investment or a percentage of the settlement, or some combination of the two. Funders of a winning suit can expect to double, triple or quadruple their money. Cases that are up for appeal, where the timespan is short—usually 18-24 months—and the chance of a loss slimmer, offer lower returns. New cases that are expected to take years offer higher potential payouts.

As funders compete for high-quality investments, opportunities in new markets arise. Bentham IMF, a litigation funder based in New York, has joined Kobre & Kim, a law firm, to set up a $30m fund for Israeli startups to pursue claims against multinationals—for example, over trade-secret violations. A burgeoning secondary market is likely to develop further, allowing investors to cash out before long-running suits are closed. Burford recently sold its stake in an arbitration case concerning two Argentine airlines for a return of 736%. Such mouth-watering profits should keep luring capital into the courtroom.

Network-based businesses will disrupt all sectors of the economy

Networks are even more powerful because their foundations are even stronger. Large corporations leveraged mass production, mass distribution, and economies of scale. Networks leverage mass computation, mass connectivity, and network effects. Because computation and connectivity improve at exponential rates, the owner of a network has insurmountable advantages over the owner of a traditional corporation.

Corporations believe that bits enhance atoms. Networks recognize that bits are the new capital and atoms are the new labor.

Dragon quest

China now has over 100 cities with populations topping one million, compared to the entire continent of Europe which has a paltry 34. Ever heard of Zhengzhou? Don’t worry if not, it’s a tier two city in Henan province that only just makes it into China’s top 20, yet it has a bigger population than the whole of Denmark. Expressed another way, China already has more millennials than the US has people.

China is of course the world’s second biggest economy and poised one day to reach the top, but consider this: if its per capita wealth were to catch up with that of Hong Kong’s, then its resulting GDP would not just surpass the United States’ today, but triple it. This is more simply reflected in the fact that each year approximately 35 million Chinese enter the middle and affluent classes. No wonder multinationals around the world are flinging everything they have at the country.


China reaches 800 million internet users

The U.S is estimated to have around 300 million internet users. The number of internet users in China is now more than the combined populations of Japan, Russia, Mexico and the U.S., as Bloomberg noted. The new statistic takes internet adoption in the country to 57.7 percent, with 788 million people reportedly mobile internet users. That’s a staggering 98 percent and it underlines just how crucial mobile is in the country.

Jakarta, the fastest-sinking city in the world

It sits on swampy land, the Java Sea lapping against it, and 13 rivers running through it. So it shouldn’t be a surprise that flooding is frequent in Jakarta and, according to experts, it is getting worse. But it’s not just about freak floods, this massive city is literally disappearing into the ground.

“If we look at our models, by 2050 about 95% of North Jakarta will be submerged.”

It’s already happening – North Jakarta has sunk 2.5m in 10 years and is continuing to sink by as much as 25cm a year in some parts, which is more than double the global average for coastal megacities. Jakarta is sinking by an average of 1-15cm a year and almost half the city now sits below sea level. The impact is immediately apparent in North Jakarta.

There is technology to replace groundwater deep at its source but it’s extremely expensive. Tokyo used this method, known as artificial recharge, when it faced severe land subsidence 50 years ago. The government also restricted groundwater extraction and businesses were required to use reclaimed water. Land subsidence subsequently halted. But Jakarta needs alternative water sources for that to work. Heri Andreas, from Bandung Institute of Technology, says it could take up to 10 years to clean up the rivers, dams and lakes to allow water to be piped anywhere or used as a replacement for the aquifers deep underground.

We all have it now

Think about that. It took 7 months for the biggest volcanic explosion in the last 10,000 years, one that affected the global climate and killed twice as many people as any other volcanic explosion in recorded history, to become news. If the same event were to happen today, we could have someone tweeting it within minutes and we would probably have video footage online within the hour. This is possible because of the democratization of information. We all have it now. Historically, having an informational edge was worth something. Being faster or having better access meant making more money. Not anymore.

This is where we are. Only those using advanced quantitative techniques have any chance of exploiting anomalies in the data. The rest of us will need to do something else. We went from a world of privileged access to information to a world where a single tweet can change everything. A world where anyone can break the story, anyone can get the data, and anyone can be a media company. If, as Brendan Mullooly points out, today’s edges are tomorrow’s table stakes, what does that leave the typical investor to do? The answer lies in a maxim from Jim O’Shaughnessy: you must arbitrage human nature.


Buyback derangement syndrome

Investors generally do not spend the money paid out in buybacks on champagne bubble baths or other forms of consumption. Rather, they reinvest it in other stocks and bonds. Buybacks thus facilitate a movement of capital from companies that don’t need it to those that do. That’s how markets are supposed to work.

Yet another claim is that much of the market rise over the last few years has been from buybacks. The numbers don’t bear this out. The direction is plausible, as researchers have found that share prices do tend to increase—by around 1%—when buybacks are announced. Several explanations have been offered for this positive reaction including that investors see repurchases as a signal that management thinks shares are undervalued, and that investors cheer when management returns cash to shareholders rather than, perhaps, wasting it on “empire building.” These explanations are behavioral effects at the margin.

Indexers will cause the next stock market crash?

My Bloomberg colleague Eric Balchunas points out that during the 2008 credit crunch, the money flows were into index funds and exchange-traded funds; more than $205 billion was put into these funds while active funds experienced $259 billion in outflows. In other words, the 57 percent sell-off of U.S. equity markets during the financial crisis gives us a good idea how passive indexers will behave when markets crash: they become net buyers while active funds become net sellers.

Beyond the 2008 crash, we have seen several market corrections since 2009. As my colleague, Michael Batnick observed, from May to October 2011, the Standard & Poor’s 500 Index fell about 20 percent. Again, between May 2015 and mid-February 2016 the S&P 500 fell about 14 percent. Other indexes, such as the Russell 2000 fell even more. And what happened? Passive index funds continued to gain market share at the expense of actively managed funds.

Which raises the question: Just who was “cruelly exposed” in those corrections? By all lights, it looks like it was the actively managed funds.

Curated Insights 2018.03.25

What’s next for humanity: Automation, new morality and a ‘global useless class’

“Time is accelerating,” Mr. Harari said. The long term may no longer be defined in centuries or millenniums — but in terms of 20 years. “It’s the first time in history when we’ll have no idea how human society will be like in a couple of decades,” he said.

“We’re in an unprecedented situation in history in the sense that nobody knows what the basics about how the world will look like in 20 or 30 years. Not just the basics of geopolitics but what the job market would look like, what kind of skills people will need, what family structures will look like, what gender relations will look like. This means that for the first time in history we have no idea what to teach in schools.”

Leaders and political parties are still stuck in the 20th century, in the ideological battles pitting the right against the left, capitalism versus socialism. They don’t even have realistic ideas of what the job market looks like in a mere two decades, Mr. Harari said, “because they can’t see.” “Instead of formulating meaningful visions for where humankind will be in 2050, they repackage nostalgic fantasies about the past,” he said.

Investing is hard

On April 1st 1976, Steve Jobs, Steve Wozniak, and Ronald Wayne founded Apple. Wayne drew the first Apple logo, wrote the three men’s original partnership agreement, and wrote the Apple 1 manual. Jobs and Wozniak each owned 45% and Wayne 10%. Two weeks later, he sold his 10% interest for $800. This 10% interest would be worth $90 billion today. He was closer than anyone to the visionaries of Apple, and he still sold.

The Cambridge Analytica scandal, in 3 paragraphs

In June 2014, a researcher named Aleksandr Kogan developed a personality-quiz app for Facebook. It was heavily influenced by a similar personality-quiz app made by the Psychometrics Centre, a Cambridge University laboratory where Kogan worked. About 270,000 people installed Kogan’s app on their Facebook account. But as with any Facebook developer at the time, Kogan could access data about those users or their friends. And when Kogan’s app asked for that data, it saved that information into a private database instead of immediately deleting it. Kogan provided that private database, containing information about 50 million Facebook users, to the voter-profiling company Cambridge Analytica. Cambridge Analytica used it to make 30 million “psychographic” profiles about voters.

Cambridge Analytica has significant ties to some of President Trump’s most prominent supporters and advisers. Rebekah Mercer, a Republican donor and a co-owner of Breitbart News, sits on the board of Cambridge Analytica. Her father, Robert Mercer, invested $15 million in Cambridge Analytica on the recommendation of his political adviser, Steve Bannon, according to the Times. On Monday, hidden-camera footage appeared to show Alexander Nix, Cambridge Analytica’s CEO, offering to bribe and blackmail public officials around the world. If Nix did so, it would violate U.K. law. Cambridge Analytica suspended Nix on Tuesday.

Cambridge Analytica also used its “psychographic” tools to make targeted online ad buys for the Brexit “Leave” campaign, the 2016 presidential campaign of Ted Cruz, and the 2016 Trump campaign. If any British Cambridge Analytica employees without a green card worked on those two U.S. campaigns, they did so in violation of federal law.


Facebook and the endless string of worst-case scenarios

“I have more fear in my life that we aren’t going to maximize the opportunity that we have than that we mess something up” Zuckerberg said at a Facebook’s Social Good Forum event in November. Perhaps it’s time for that fear to shift more towards ‘what could go wrong’, not just for Zuck, but the leaders of all of today’s tech titans.

Most recently, Facebook has found its trust in app developers misplaced. For years it offered an API that allowed app makers to pull robust profile data on their users and somewhat limited info about their friends to make personalized products. But Facebook lacked strong enforcement mechanisms for its policy that prevented developers from sharing or selling that data to others. It’s quite likely that other developers have violated Facebook’s flimsy policies against storing, selling, or sharing user data they’ve collected, and more reports of misuse will emerge.


The Facebook brand

This episode is a perfect example: an unintended casualty of this weekend’s firestorm is the idea of data portability: I have argued that social networks like Facebook should make it trivial to export your network; it seems far more likely that most social networks will respond to this Cambridge Analytica scandal by locking down data even further. That may be good for privacy, but it’s not so good for competition. Everything is a trade-off.


Inside Apple’s secret plan to develop and build its own screens

Controlling MicroLED technology would help Apple stand out in a maturing smartphone market and outgun rivals like Samsung that have been able to tout superior screens. Ray Soneira, who runs screen tester DisplayMate Technologies, says bringing the design in-house is a “golden opportunity” for Apple. “Everyone can buy an OLED or LCD screen,” he says. “But Apple could own MicroLED.”

Creating MicroLED screens is extraordinarily complex. Depending on screen size, they can contain millions of individual pixels. Each has three sub-pixels: red, green and blue LEDs. Each of these tiny LEDs must be individually created and calibrated. Each piece comes from what is known as a “donor wafer” and then are mass-transferred to the MicroLED screen. Early in the process, Apple bought these wafers from third-party manufacturers like Epistar Corp. and Osram Licht AG but has since begun “growing” its own LEDs to make in-house donor wafers. The growing process is done inside a clean room at the Santa Clara facility.

The secretive company that pours America’s coffee

Keurig is offering distribution services to an increasingly broad network of outside brands through its Dr Pepper Snapple deal. It will also be able to sell its coffee, part of an armada of 125 beverage brands, to new customers. Peet’s distribution system is a regional one that doesn’t cover certain retailers such as convenience stores, popular stops for consumers who don’t want to wait in line at larger stores. Dr Pepper’s larger fleet will enable Peet’s ready-to-drink beverages to get into more stores.

Drake and Fortnite create a “crossing the chasm” moment for gaming

While the gaming market is large, generating $100 billion in revenue globally, it reaches relatively few people compared to the music market. Interestingly, music touches almost everyone on earth but generates only $16 billion in revenue per year.

Twitch is the other beneficiary, of course. Twitch is cementing its position as a modern-day ESPN with 15 million daily viewers who spend on average almost two hours per day on the platform.


Oasis hedge fund boss bets on Japan’s professional gaming scene

Strict anti-gambling laws had prevented paid competitions for years, but the industry’s move this month to issue professional gamer licenses is allowing them to sidestep the regulations. Fischer says that lays the groundwork for publishers to grow audiences, sell more games and begin generating new revenue from broadcasting rights and advertising.

Worldwide esports revenue, including media rights, advertising, ticket sales and merchandising, will reach about $5 billion annually by 2020, almost as much as the world’s biggest soccer league today, according to market researcher Activate. The total audience for competitive gaming will grow to 557 million people by 2021 from 380 million this year, according to researcher Newzoo.


Why watch other people play video games? What you need to know about esports

Competitive video game playing, more commonly known as esports, drew 258 million unique viewers globally last year, according to research firm SuperData. For perspective, the National Football League said 204 million unique viewers tuned into the 2016 NFL regular season in the U.S., based on Nielsen data. Just like “real” sports, esports makes money off of investments, branding, advertising and media deals, raking in $1.5 billion in revenue last year, said SuperData. The firm expects the esports industry to hit 299 million viewers this year and top $2 billion in revenue by 2021.

The two things we look for in a management team

As the slide mentions, Verisk decides on buybacks or M&A depending on the available opportunities. Even if they don’t always make the correct assessment in hindsight, we like that there’s a process in place. We were further impressed that Verisk followed the above slide with IRR results from their capital allocation decisions. Again, this level of transparency is rare, but we welcome it and would like more companies to follow suit.

Samsonite wants to spend up on handbags

Parker said Samsonite isn’t actively approaching potential buyers, and the company will likely spend the next year or two consolidating after its $1.8 billion acquisition of luxury bag maker Tumi Holdings Inc. in 2016 and the $105 million purchase of online retailer eBags Inc. last year. The non-travel products market could be a potential space for deals in the future, he said in a separate interview with Bloomberg TV on Thursday.


How one investor turned a bet on the Swiss Central Bank into millions

Still, the root of the gains for Mr. Siegert and the SNB’s other 2,191 private investors is a bit of a mystery. The SNB isn’t like other stocks and pays a tiny dividend. It is governed under laws for both public and private institutions, and owned primarily by individual Swiss states, known as cantons, and cantonal banks. Public-sector bodies own almost 80% of voting shares.

Shareholders have no say in the SNB’s monetary policy or how it manages its massive 790 billion franc war chest of foreign-currency stocks and bonds, built up through years of interventions to weaken the franc.

On the plus side, the SNB is ultrasafe. It prints its own currency—and the franc is among the world’s strongest—which it uses to buy assets. When the SNB loses money, it can always print more. Recently, its profit has been on a tear, aided by rising global stock markets, low bond yields and a weaker franc. The SNB earned a record 54 billion francs in profit last year.


Tencent’s 60,000% runup leads to one of the biggest VC payoffs ever

The stake Naspers bought for just $32 million in 2001 — when Tencent was an obscure Web firm in a nation where few people used the Internet — is now worth $175 billion.

The sale of 190 million shares, worth $10.6 billion based on Tencent’s closing price in Hong Kong on Thursday, will cut the stake held by Naspers to 31.2 percent from 33.2 percent. It’s the first time Naspers has reduced its holdings in Tencent since investing in the company. Naspers won’t sell more shares in the company for at least three years, it said.

Has China overtaken the U.S. in terms of innovation?

In 1996, China invested 0.56 percent of its GDP in R&D, while the U.S. invested 2.44 percent of its GDP. In 2015, China invested 2.06 percent of its GDP, whereas the U.S. invested 2.79 percent. That is, the R&D intensity in China increased by 1.5 percentage points and in the U.S. by only 0.3 percentage points.


Harvard’s nutty idea: Cracking into the almond market

Around 80% of the world’s almonds are currently produced in California, whose almond plantations in its Central Valley have generated strong returns for investors for many years. Volatile weather in recent months, including frost and storms, have hurt estimates for the state’s almond harvest this summer, helping to push wholesale export prices for U.S. almonds to near a two-year high of $6,807 a metric ton.

Consumption of almonds grew 15% from 2012 to 2017, according to estimates from Euromonitor International, which forecasts 4% annual growth through 2021.

In Australia, nuts generate gross revenue of 8,097 to 12,146 Australian dollars (US$6,314 to US$9,471) per acre, roughly 40 times that of grains for the same area, according to the Australian Nut Industry Council. At current wholesale prices of about US$7 per kilogram in Australia, almonds offer a gross margin of around 45% before overhead costs and other expenses, according to Tim McGavin, chief executive of Laguna Bay Pastoral Co., an agricultural asset manager in Brisbane.


Elderly in U.S. are projected to outnumber children for first time

The Census Bureau projects the country would grow to 355 million by 2030, five million fewer than it had estimated three years ago. That is an annual average growth rate of just 0.7%, in line with recent rates but well below historical levels.

Lower population growth could drag on economic growth. This year’s prime-age workforce—ages 25 to 54—is about 630,000 smaller than the Census Bureau projected it would be just three years ago. The bureau projects the prime-age workforce will grow 0.5% a year through 2030, down from a 2014 projected annual rate of 0.58% for the same period.

The share of Americans who are foreign-born, now about 13%, is expected to reach a record 14.9% by 2028, topping a mark set in 1890. That share would rise to 17.2% by 2060.

Does indexing threaten the market?

But from the above results and others, it does not appear that the current level of indexing is a significant problem. This assumes the 24.9% figure for index equity mutual funds and indexed ETFs as a fraction of all U.S. equity mutual funds. As mentioned above, there are no firm figures for institutional indexing or international markets, but it seems unlikely that overall indexed investments exceed the level of roughly 25%.

Along this line, we remain concerned about the fact that many new index ETFs might not be truly independent of the creation of the index, as mentioned above. Even more importantly, given that many of these ETFs and indices are designed via a process of computer exploration of many different component weightings, these ETFs are highly vulnerable to backtest overfitting. As mentioned above, a 2012 Vanguard report found that while 87% of newly published indexes outperformed the broad U.S. stock market over the time period used for the backtest, only 51% outperformed the broad market after inception of the ETF tied to the index.


“I hope for Goldman Sachs’ bankruptcy”: Nassim Nicholas Taleb on Skin in the Game

Our conversation concludes on an optimistic note: “We’ve survived 200,000 years as humans,” says Taleb. “Don’t you think there’s a reason why we survived? We’re good at risk management. And what’s our risk management? Paranoia. Optimism is not a good thing.” Is the paradox, I ask, that human pessimism offers grounds for optimism? “Exactly,” Taleb replies. “Provided psychologists don’t fuck with it.”


What your fund management job will look like in a decade

Asset managers are being squeezed as increased regulation drives up costs and investors shift more money into lower-cost investment products. The solution? The greater use of technology and data-mining to defend margins, reduce expenses and win more client business.

While alternatives still only account for about a tenth of assets, they contribute about 30 percent of revenue, and Oliver Wyman sees that growing to about 40 percent by 2025. That trend will continue to benefit the bigger players able to offer a wider range of investment strategies.

Asset managers that analyze their customer relationship information in conjunction with the asset allocation preferences of both existing and potential customers will gain an advantage. The bigger the firm, the more data it will have available and the more resources it can throw at improving its analytic capabilities.


NASA study: Astronaut’s DNA no longer identical to his identical twin’s after year in space

Though most of Kelly’s biological changes returned to baseline levels after returning to Earth, seven percent of his genes point to possible long-term changes, according to the study. NASA’s preliminary findings were validated this week, according to Space.com. “The Twins Study has benefited NASA by providing the first application of genomics to evaluate potential risks to the human body in space,” according to a release from the agency.