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WCM Investment Management | Insight | Beach Reads 12 - 8 | Before jumping into the final edition of Beach Reads for 2020, I wanted to thank everyone who has helped bring this project to life this year.
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Beach Reads

December 8, 2020

Before jumping into the final edition of Beach Reads for 2020, I wanted to thank everyone who has helped bring this project to life this year. First, this initiative couldn't have happened without the support of the WCM team – and a special shout-out goes to the compliance team. Second, I'm grateful to the content creators who largely operate small publications and share their insights with the world. Third, thank you to my editor, for working closely with me to polish the posts. Fourth and finally, thank you, the readers and subscribers of Beach Reads. It's genuinely thrilling to know that you find the content compelling and I'm grateful for every email, question, and bit of feedback I've received. Hearing from the audience – both subscribers and content producers – has been one of the most satisfying and completely unexpected outcomes, showing that sometimes it's less important to provide answers than to start a stimulating debate.

By way of a quick recap: Beach Reads began in January and was rolled out to the broader public in April. There have been 24 editions of Beach Reads, featuring around 250 articles. This round up represents some of the most intriguing content I've found throughout the year. I tried to feature "evergreen" content that should be broadly insightful for years, rather than articles centered around more transient news events. As a wrap on the year, the post is longer than usual, giving you the opportunity to browse through at a leisurely pace until Beach Reads resumes in the new year.

As we move toward what will hopefully be a brighter 2021, it is encouraging to see green shoots emerging already. With efficacious vaccines being deployed as soon as this month, I expect a very different world when I post the Best of Beach Reads 2021. And I'm personally very excited for that. I also expect Beach Reads to look a bit different in 2021. In order to make it even more compelling, timely, and actionable, I'd like you to please reach out with thoughts on improvements. Any idea is welcome: fewer links, more podcasts, original essays, live-streams…whatever feedback you have, I'd love to hear it. Don't hesitate to connect at insights@wcminvest.com. Again: thank you all, and I'll see you again in 2021!

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Conor Deveney

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ABOUT Beach Reads

Welcome to Beach Reads, a collection of interesting links that we at WCM have come across and want to share. The goal of this publication is to engage with a broader audience in order to better ourselves and others. Feel free to email us at insights@wcminvest.com with any thoughts or feedback, and click here to subscribe!

01. The Ever Evolving Internet

COVID has accelerated many trends that were already under-way pre-pandemic. While some, like the move to work-from-home, are very obvious, others, including the evolution of the internet, may not be. As an example: US ecommerce sales have gone from ~16% of total retail sales to nearly 30% through 2020, representing a massive step-function change in ecomm penetration. As more of the world becomes digital in nearly every sense, it is important to understand what this means for businesses, consumers, and the world. The articles below highlight a number of key themes, ranging from the metaverse, to online communities, to what it actually means to create things online, that may help you understand the internet as it grows and changes. There is a lot to digest here, but if interested in learning more about this important theme, I recommend reading all of it. And if you get tired of reading, check out the podcast with Stripe's co-founder, John Collison, at the bottom of this section.

Signaling as a Service

I enjoyed this article from a blog I had never come across before. In it, the author expands on the notion of conspicuous consumption. Specifically, he examines what role software has in status signalling. His conclusion is that, for the most part, software cannot be a status symbol because it can not be effectively displayed in public. Instead, most software is successful as an amplifier of existing status symbols. Having said this, he believes that Tinder and Fortnite have crossed that chasm, and represent status in a digital world. Importantly, this is how they monetize (and in massive ways): "Fortnite has pulled off what so many other software products have been struggling with – monetizing a purely digital product whose value is not based on utility or entertainment but solely on the one thing we all secretly care so much about: Signaling...The financially most lucrative strategy for software companies is to provide distribution for free and instead monetize users who want to stand out of the crowd with paid signal amplification." Signaling in the Fortnite way - solely through digital media/ products - is an interesting phenomenon that signals elements of the metaverse. I'm curious what other software will be successful in a similar way. From: The April 14, 2020 Beach Reads

Craft is culture

Past Beach Reads have included the work of Alex Danco, currently employed at Shopify and previously at Social Capital. This recent piece from Danco's blog reflects on the evolution of work culture and today's work-from-home environment (and implications on hiring). At the same time, it examines the role that "craft" has played in building communities, especially online communities. He then connects the two: "It seems obvious to me that this world we're entering is just a more intense, and more widespread, application of the lessons we learned 30 years ago in the early California tech industry and on the early internet. Hiring and craft become the same thing. The more effort you invest internally into craft development and celebration, the more people will want to work with you. (On the flip side, in a remote work world, craft and process knowledge are even more important than they used to be, because we have to trust each other a lot more.)" I love the idea that craft is a signal of sorts: it is an external manifestation of one's obsession with one's calling. Birds of a feather tend to flock together, so when it comes to recruiting, those with the best "craft" expression likely have the most devoted communities, and therefore the best options for hiring. This is especially true in a remote working world where talent is no longer geographically constrained. Check out the end of this Charlie Songhurst podcast for more on what this trend means for companies. From: The July 21, 2020 Beach Reads

Making is Show Business now

This blog post from Alex Danco reviews the topics introduced in the book Working in Public: The Making and Maintenance of Open Source Software. One of the most interesting highlights is the not immediately obvious connection between developing and marketing technology and show business. "Making technology seems like a world apart from entertainment and show business. But in this new world, making is show business. Look at what founders do all day! And I don't mean that in a derogatory way. It's hard work to create a product, create attention, and then – most importantly – manage that attention so it feeds your momentum but doesn't burn you out." As it relates to open source development, Danco outlines that creators tend to be less successful working in large groups than when working on a project largely independently while maintaining mindshare with a broader group. This is an interesting divergence from the team-oriented internet communities of the late 1990s, which tended to be built on trust: "In the old world, you maximized engagement and retention of your community by giving them trust, and giving them context, and making them peers. Platforms make it easier to create and discover and distribute, but at a cost: too many people, too much attention, and too little friction to join or leave. The cost of platforms is less overall trust, and less overall context, for everyone but the core nucleus. Instead of fighting that tradeoff, we accept it: we find new ways to build, like microservices, which make it easier for low-trust, low-context participants to be productive anyway." One interesting topic to consider in light of this piece is how platforms can be successful and maintain engagement. From: The October 13, 2020 Beach Reads

Zero Trust Information

This is a great article from Stratechery. In it, the author traces the evolution of the internet and secure networking in order to, in part, highlight the immense communicative power the internet yields. The author then goes on to describe the important role the internet played in allowing researchers to broadcast information about the coronavirus on Twitter, leading to precautions being taken by businesses, governments, and individuals. Importantly, these were done absent any centralized decision making: "You can draw a direct line from this tweet thread to widespread social distancing, particularly on the West Coast: many companies are working from home, traveling has plummeted, conferences are being canceled. Yes, there should absolutely be more, but every little bit helps; information that came not from authority figures or gatekeepers but rather Twitter is absolutely going to save lives." This example of Twitter being used as a tool to advance understanding of a public health concern is, for the author, evidence of the power of distributed information sharing, rather than information being shared solely through the traditional gatekeepers: "There is, though, reason for optimism, and a belief that things will get better, the more quickly we embrace the idea that fewer gatekeepers and more information means innovation and good ideas in proportion to the flood of misinformation which people who grew up with the Internet are already learning to ignore." From: The March 16, 2020 Beach Reads

An Interview with Eugene Wei About the Half-Life of Information

This was as fun interview from Stratechery, in which Ben Thompson chats with Eugene Wei. In their discussion, Ben and Eugene cover the shelf-life of information, but more specifically, they focus on the digital content of the large "streaming" players: Netflix, Disney, Hulu, and YouTube. The basic idea is that the shift to ever-available digital information/entertainment as well as the proliferation of content has resulted in shorter-lived content relevance or "half-life." One point that I found particularly insightful was how media companies will manage the half-life of their content and what implications this has for their business models: "The other factor here that matters is that I don't think any one of these companies completely controls that amortization or half-life period because it is context dependent. You're always competing with other forms of media and companies; you don't operate in a vacuum. That is the crux of the question and it'll be really interesting to monitor the amortization schedule of Netflix moving forward. But also I think that for all other media companies, it will be very curious to see if they are fighting in an overall zero sum game." The idea here is not only that IP must be relevant for a long time, but also that all entertainment competes against itself. This means that Fortnite competes with Netflix just as much as Disney does. From: The March 30, 2020 Beach Reads

John Collison - Growing the Internet Economy

Overstatement and expectation management be damned - this edition of Invest Like the Best is one of the best podcasts I've ever listened to. Besides the incredible feat of building a $36 billion-plus payments company by age 29, Stripe co-founder John Collison shows his incredible grasp of business history, business strategy, and public equity investing, throughout this scintillating conversation with host Patrick O'Shaughnessy. It's one of those rare instances of a podcast that's worth listening to from start to finish, despite being 80 minutes long. From: The June 23, 2020 Beach Reads

02. Platforms and Networks

As the internet and, more broadly speaking, technology sector continues to evolve, it is critically important to understand these businesses' moat sources and growth opportunities. Two interrelated frameworks, I think, are helpful in internalizing how unique many tech businesses are. These frameworks are network effects and platform dynamics. Network effects are likely well-known to many readers, and appear to be more present in online businesses compared with offline businesses. Many online businesses that benefit from positive network effects operate platforms – structures that are maintained by a given company and help connect parties that interact on the platform. Platform businesses with strong network effects have proven to be highly valuable, fast growing, and so far relatively resilient (in most cases) to competition. The articles below help define network effects and platforms, go through a couple of case studies, and provide helpful overall color on how to think about these business.

Status Games: Engineering Scarcity in a World of Abundance

This podcast and accompanying article featuring Eugene Wei tie together a lot of recurring Beach Reads themes. The article provides an overview of 12 ways that scarcity is artificially engineered to create demand to help kick-start network effect business. Wei, whose work is often featured in Beach Reads, argues that networks are built first on scarcity, then pivot to utility: "A lot of networks that have achieved super scale had some sort of status incentives or status games built in, very early on," he says. "It helped them to get that kinetic energy that you need in order to achieve scale that then increases your utility. Those networks were paying you to develop the network – paying with ego, with status, with a sort of an emotional payback rather than a monetary one." It isn't so straightforward, though, as managing status is incredibly difficult: "One of the important things to understand in the long run is that managing a network and the status dynamics within it evolves over time. It's the precarious nature of status. We all know that there will be some hot nightclub in New York one year, and then just one day, it will die off and will have to be shuttered and rebranded as something new." From: The November 24, 2020 Beach Reads

Platform, Ecosystems, and Aggregators

In this episode of Invest Like the Best, Patrick O'Shaughnessy talks to Ben Thompson, who focusses on tech and the media in his Stratechery blog. The subject that really caught my attention in this wide-ranging conversation is the difference between aggregators and platforms, which changes both how companies should operate and what metrics are important to watch for as a public investor. It's a topic I haven't given a ton of thought to, but am now convinced I should. Thompson, who is a well-regarded business thinker, also talks about Spotify and podcasting, which was touched on less positively in the last edition of Beach Reads. Finally, towards the end of the edition, the two talk about Epic Games, which was also featured in Beach Reads two weeks ago. Interestingly, Thompson highlights the "real world" nature of status symbols in a virtual world (see "Signaling as a Service" article here). From: The June 9, 2020 Beach Reads

The Entertainment Value Curve: Why TikTok is On Fire and Quibi Isn't

Why is TikTok so successful, while new short-form video format Quibi has so far struggled to gain traction, despite serious backing from Hollywood and Silicon Valley heavyweights? "Quibi's shows were designed to be watched by a single person on a tiny mobile screen and, surprisingly, the app does little to promote online social interaction between its viewers," says the author in this Reforge article. "TikTok is built for sharing, whereas Quibi made it deliberately hard to share from the app — by making it impossible to snap screenshots." Short-form professional video content with limited sharing and social features seems to be a fundamental design flaw of Quibi and also alienates the "creators" who have become accustomed to generating content for viewers. "TikTok's design takes a clear stance—snackable media is social media. The right rail of TikTok is entirely dedicated to the social interactions vital to the app's experience: following creators, reacting, commenting, sharing, and mimicking the current video," the article says. "Quibi has been thinking about itself as a film studio. The company needs to think about itself as a social network." The author uses two graphs to illustrate differences between video content providers such as TikTok, Quibi, Netflix, and YouTube. The Entertainment Value Curve maps social value vs. production value (the two seem to be polar opposites), while the Content Distribution Curve plots view count vs. amount of content (again, the two are opposites). I'm interested to see whether slightly altered versions of the curves can apply to other social media platforms. Perhaps video games (free to play games vs. traditional) would be a good case study. From: The September 29, 2020 Beach Reads

Platform Liquidity: Why Economic Incentives Matter

It's becoming increasingly difficult to come across a company that doesn't style itself as a platform. Previous Beach Reads have presented different frameworks about platforms, with a focus on marketplaces. While determining exactly what constitutes a platform is a discussion for another day, this article from Sameer Singh helpfully breaks platforms into two categories. Type A are platforms that are "focused" and have "integrations," resulting in "weak defensibility and scalability" (e.g. Slack), while Type B are "multi-purpose with native apps" that have "strong defensibility and scalability" (e.g. Shopify). The differences between the categories determine the way incentives exist within each and how growth should be pursued, according to Singh. "Startups building platforms with known use cases (Type A) can easily reach liquidity by targeting developers who already share users with them. On the other hand, startups building truly multi-purpose platforms (Type B) have a more difficult path to liquidity — they need to attract hobbyists first to show some traction before they can appeal to professional developers." Thinking about how network effects operate in different types of platforms and how they scale as a result is a helpful way to add some structure to the otherwise generally nebulous discussion of platforms. From: The October 13, 2020 Beach Reads

Come for the Network, Pay for the Tool

I've featured the work of Toby Shorin in the past and think this recent post adds to the theme of increased online content creation. The owner of strategy and research firm Other Internet focuses on how online presences and content can create real, niche communities that serve needs that are not met by large social media companies. These communities can be supported via subscription instead of advertising. From Shorin: "Paid communities are a still-nascent category, but the business model is familiar: free content with a subscription paywall for more (the standard model of content + social). Paid communities develop this formula further: they take the subject matter of a content producer or brand lifestyle, and pair it with a paywalled digital social space for ongoing user interaction. Here the community is not a passive audience, but one that generates its own discussion, and for users comprises much of the value in and of itself. This community often comes to re-shape the brand or content development process." In a way, this sounds like the digital manifestation of existing physical social groups, such as country clubs. Perhaps unlike physical groups, these online communities will likely be used by brands as some sort of sales or marketing channel, which Shorin believes will be difficult to balance: "Different users of the 'community' word have different motivations, and these motivations will be the origin of conflict — conflict not only about the word's meaning, but about how this type of business should be operated. But these debates, no matter how uncomfortable, should be had. Because in a very real way, the financial and social sustainability of paid communities will depend on the degree to which the communities are recognized not as a monetizable resource but as a body of people with social needs, emotional lives, and practical concerns of livelihood." There are a lot of ideas to pursue here: the infrastructure needed for these communities, the right way to monetize them, how much external or "branded" content should exist within them, etc. Perhaps a good first take at branded content for paid communities is through mimetic advertising. From: The August 4, 2020 Beach Reads

03. Big vs. Small Business

An important post-COVID phenomenon will likely be the dynamic between small and large businesses. The evolution of this relationship over the past year is a continuation of an important trend in investing over the past decade or so: the rise and continued success of large enterprises (large companies are now larger than ever compared with small companies). COVID has likely accelerated the trend, as the articles below highlight. It is important for investors to consider what this means. Will the next decade see large businesses continue to dominate? Will regulation significantly alter the landscape for large businesses, especially in tech? Will there be a post-COVID revival of entrepreneurialism? The range of possible outcomes is wide and I'm excited and hopeful to see if the 20s will be marked by innovation and business formation.

The Gap Between Large and Small Companies is Growing. Why?

David and Goliath. The colonies and the monarchy. History is rife with examples of underdogs prevailing – a trend that has also traditionally held true in the business world (think: "Innovator's Dilemma"). However, this article from the Harvard Business Review argues that it is harder than ever for small companies to grow as incumbents become increasingly entrenched. Perhaps surprisingly, the facts seem to challenge the idea of a lazy incumbent: "Part of the reason for this growing corporate divide between big and small firms is the growing R&D expenditures of large firms ... On average, a large company spent $330 million on R&D in 2017, while the average small company spent a paltry $6 million – obviously insufficient to keep pace with a large competitor, except through a fortuitous discovery. The decreasing productivity of R&D investments makes matters worse for small companies." I wonder if this is a lasting structural change and, if so, what the economy will look like in the coming decades. From: The May 12, 2020 Beach Reads

The great acceleration

One recurring theme in business analysis around COVID-19 impacts is that the big keep getting bigger. Consulting firm McKinsey recently published a report that reiterated this theme: "Our analysis reveals that the gap in economic profit between the top corporate performers and everyone else has widened dramatically. In effect, the crisis has accelerated a trend that was already present. Between December 2018 and May 2020, the top quintile of companies grew its total market-implied annual economic profit by $335 billion, while companies in the bottom quintile lost a staggering $303 billion. And while the specific numbers can fluctuate from day to day, the larger trend is unmistakable: a gap is opening up, and it's rapidly expanding." This phenomenon was occurring before COVID-19 but appears to have sped up as of late. The authors also highlighted the important role that speed plays in making sure businesses continue to succeed: "In times of crisis, however, the burning platform is clear, leaders are often in military-command mode, and precrisis budgets have become obsolete. Resources are easier to reallocate when no one needs to be convinced of the need for a rapid response and the individual targets set before the crisis no longer apply. Think of it as a big 'unfreeze'." Today, and going forward, businesses that have leaders and cultures that are adaptable and fast seem poised to continue to grow. From: The July 21, 2020 Beach Reads

Don't hate the playa, hate the game

In the April 28 edition of Beach Reads I included an article by Marc Andreessen called "It's Time to Build." Recently, a Substack blog called Tech Learnings featured a response (of sorts) that challenges the idea that tech companies are a panacea to social and economic difficulties. Instead, the author focuses on "lousy" businesses, such as airlines, pointing to the fact that despite low returns on assets, etc., these business employ massive numbers of people and support other ancillary industries. The article then challenges software as a service (SaaS) employment numbers and puts SaaS margins in perspective by comparing them to a lender with extortive APRs: "discussions around SaaS margins or platform take rates should make us feel the same way. It is unrealistic to expect consumers to lead this fight as most aren't close to these issues. Regulators need to lead the way here. We need a new paradigm beyond discussions of Herfindahl-Hirschman index and definitions of market power. We need a better way to incentivize hardware businesses. We need a way to discourage asset-light business models and a way to cap the rents charged by marketplace platforms." As an investor, these are hard theoretical truths to swallow. To a certain extent, this quote, especially regarding the Herfindahl-Hirschman index, reminds me of the work of Columbia Law School professor Tim Wu, who argues for a redefinition of what constitutes a monopoly. I'm also reminded of some of management consultant Peter Drucker's work on entrepreneurship, which is in some cases key to disrupting extractive industries. What do you all think? From: The May 27, 2020 Beach Reads

04. Moats and Quality Investing

An important feature of WCM's investment philosophy is buying and holding companies that have growing moats. While very few companies, if any, use this language to describe their businesses, a set of tools used by the analyst team helps us see the forest for the trees and tease out whether or not we think the business has a positively evolving moat. The articles in this section highlight some thoughts on this style of investing, sometimes called "quality investing," including descriptions of some tools that these authors believe help in the search for quality businesses.

Quantifying Quality

The headwinds experienced by value investors over the last 13 years or so are often chalked up to strength in another investment style: growth. However, often underlying growth is the all-important "quality" factor. This piece from investment firm Lindsell Train examines what quality is and how it relates to its own portfolios. Importantly, author James Bullock highlights how improving quality is an important element of returns. Bullock writes that a number of holdings were "not obviously textbook quality companies when we first bought them. The business vitals were ok with mid-single digit returns and margins, but certainly nothing that would jump out at you from a screen. All, though, have improved dramatically in the eight or nine years that we've held them...and missing out on any would have made a noticeable difference to our performance." This is where factors or screens may fall short: the human eye and analyst mind seem better positioned to predict changes - improvements - in businesses, and the market rewards improving returns. From: The July 7, 2020 Beach Reads

Attacking the Moat

Critical to assessing how defensible companies are and how durable their growth will be is developing a good understanding of their moat(s). This can be a tricky project: companies that initially appear to have wide moats may turn out to be vulnerable once they are attacked, while others turn out to be more resilient than people thought. "When a moat is attacked, and that attack is repelled, it should greatly increase your confidence in the durability of a company's competitive advantage, and your valuation of the asset," writes the author of this blog post. "Moat attacks are happening constantly. In fact, just off the top of my head, I can think of attacks on Moody's moat after the financial crisis, or Visa/Mastercard facing attacks from new fintech players and digital wallets. In each of these cases, the moat was sufficient to defend the castle and the stocks have soared to new highs." But companies that succeed in fending off one attack aren't immune to future raids, since disruptors and the strategies they use to breech moats continually evolve. With the average lifespan of a S&P 500 company coming in at less than 20 years, eventually most moats fail, making well worth studying the rare company that can fend of multiple attacks. From: The July 7, 2020 Beach Reads

05. Corporate Governance and ESG Investing

Another key trend in 2020 has been the continued rapid ascent of Environmental, Social and Governance (ESG) investing. With fund flows seeming to favor the asset class (global fund flows doubling that of non-ESG since 2017), companies have worked to better understand what ESG means to them, including how to incorporate ESG metrics and Key Performance Indicators into their businesses. The first article below is by a blogger that I think does fantastic work on the corporate governance front – in this piece, he highlights how good corporate governance can effectively be a moat source for some businesses and the lack of it a liability for others. The second article introduces a concept that I think will continue to gain traction through time: shareholder value versus stakeholder value.

Corp Governance: The Achilles' Heel of "High Quality" Companies

I really enjoyed this article from a former activist investor. In it, the author outlines the importance of good corporate governance and how changes like better oversight over capital allocation and even improved messaging to public equity investors can have a large impact on a company. One of the main points made in the article is that good corporate governance helps align incentives between managers and shareholders - things like concrete performance metrics, vesting, and specific targets help hold management accountable. While this may not seem like rocket science, many companies can do well in spite of poor corporate governance, and then fall apart when fundamentals slow (the author points to Valeant as an example). From the author: "I think the reason [good corporate governance] is not fully appreciated is because the 'value add' of good corporate governance is not clearly attributed in the P&L. It can be hard to quantify the value attributed to good corporate governance. For example, most employees love steady stock returns brought on by sound capital allocation principles, and appreciate clear communication at the top. This creates a lower churn environment where employees know what is expected of them and can buy into the Company's vision. Good corporate governance also attracts thoughtful, long-term orientated shareholders, and improves the talent base as more high-performing talent joins the Company." From: The March 2, 2020 Beach Reads

Understanding Stakeholder Value: Where do Profits Come From?

Intrinsic Investing recently published this piece that juxtaposes the familiar notion of "shareholder value" to an interesting term called "stakeholder value." In short, the authors highlight that given the (increasing) interconnectedness of the world, it makes sense that companies evolve to not only serve shareholders, but also the broader group of stakeholders that includes groups of people like customers, employees, and even regulators. "The future success of a company is dependent on the organization creating value across its entire stakeholder ecosystem," the article says. "Just as shareholders benefit from supporting value creation across the company's other stakeholders, so do those other stakeholders benefit from supporting economic value creation for shareholders." Intrinsic's definition of stakeholder value echoes the ideas of authors such as NZS Capital and W. Brian Arthur, which may indicate a growing awareness of, and interest, in this "ESG-Plus" approach to investing in companies that exhibit win-win outcomes for all the communities they serve. From: The September 15, 2020 Beach Reads

06. Complexity and COVID

Frequent Beach Readers will know that I am a huge fan of the Santa Fe Institute's W. Brian Arthur and believe that his theories on complexity economics have important implications in the world of investing. Complexity theory can also be applied to COVID, as the first article below illustrates. The second article is a piece from the New Yorker that I enjoyed because it is one of the few COVID pieces that puts a truly human spin on the issue. While trying to avoid many COVID-specific articles in Beach Reads this year, I thought this article was insightful, and almost haunting in a way.

Uncertain Times

This article, published in Aeon in association with the Santa Fe institute, is a titillating real world study of complex systems. The authors provide examples of complex systems in nature and in the man-made world, spanning financial markets, social structures in groups of monkeys, and global pandemics. They argue that in the man-made world, reactions to complex systems are often short sighted and fail to solve problems. This is at least in part due to a form of hindsight bias: "Fiascos happen when we use crude data to make qualitative decisions. Other reasons include facile understandings of cause and effect, and the assumption that the past contains the best information about the future. This kind of 'backward looking' prediction, with a narrow focus on the last 'bad' event, leaves us vulnerable to perceptual blindness." To better adapt to complex systems, the authors suggest "designing systems that favour robustness and adaptability – systems that can be creative and responsive when faced with an array of possible scenarios. The COVID-19 pandemic provides an unprecedented opportunity to begin to think through how we might harness collective behaviour and uncertainty to shape a better future for us all. The most important term in this essay is not 'chaotic', 'complex', 'black swan', 'nonequilibrium' or 'second-order effect'. It's: 'dawn." From: The September 1, 2020 Beach Reads

Home Alone Together, in LA

I enjoyed this piece from The New Yorker. While the news around COVID-19 tends to revolve around numbers: case counts, GDP, unemployment, etc., this essay is more personal and reflects upon the way the world has changed, what it might mean to be sick, and how uncertain we all feel. Early in the essay, the author points out an amusing (and in some ways, sad) reality: over the past couple of years, even when in public, people have been "socially distancing" through phone use. Now, phones allow us to peer back out into the world. From the article: "The required form of isolated solidarity is, weirdly, both in synch and at odds with what, for the past decade or so, has seemed an increasingly solipsistic withdrawal, whereby, even as people appear physically to be on the streets, they're psychically disappearing into their phones. Now we're on our phones at home as a way of being on the street, kicking ourselves for all those hours wasted outside, looking at screens when we could have been looking at one another." The author includes many more personal anecdotes in this piece, but I latched onto this quote because it stuck a chord with me. While my phone is keeping me connected now more than ever before, I can't wait to leave it home and get back to life as normal - hopefully someday in the not-so-distant future. From: The April 14, 2020 Beach Reads

07. The Intersection of Life and Business

These articles generally appeared in the "Reflections" section of Beach Reads, but I've aggregated them in a different stand-alone section this time around. All the posts address an intersection we've come to appreciate: that of life and business. Many feature life advice, with business insights peppered in. The articles resonate with me because the lines between my own life and work have blurred during COVID and I am fascinated by the ability to apply some life lessons to business, and vice-versa.

How Will You Measure Your Life?

What a phenomenal read. Most of us know Clayton Christensen from his book, "Innovator's Dilemma." And while an accomplished scholar, I was blown away by this speech he gave at HBS back in 2010. In it, Clayton describes six important strategies for living a fulfilling life. In my opinion, this is required reading for Beach Readers. There are too many quotes to pick from, but here is one of many that I loved: "Management is the most noble of professions if it's practiced well. No other occupation offers as many ways to help others learn and grow, take responsibility and be recognized for achievement, and contribute to the success of a team." Management includes rearing children, managing relationships, and succeeding as an individual. One of my favorite parts of this piece is how Clayton integrates business concepts with day-to-day life in order to help drive home points to all of us that spend too much time in EDGAR. Clayton Christensen recently passed away, but his work will continue to live on and impact that lives of others. From: The February 18, 2020 Beach Reads

Finite and Infinite Games: Two Ways to Play the Game of Life

I liked this post from Farnam Street - in it, the author frames two different philosophies for living life. The first is to approach life as a "finite game" and the second is to approach life as an "infinite game." The difference between the finite and infinite approaches determines what individuals prioritize in life. From the article: "Finite players have to parade around their wealth and status. They need to display the markers of winning they have accumulated so that other players know whom they are dealing with. Infinite players, in contrast, look to the future. Because their goal is to keep the game going, they focus less on what happened, and put more effort into figuring out what's possible. By playing a single, non-repeatable game, they are unconcerned with the maintenance and display of past status. They are more concerned with positioning themselves to deal effectively with whatever challenges come up." The author goes on to detail how infinite players require education, rather than training, to be successful in life. This is because in an endless game, adaptability is important. I think this article may have some parallels to investing. From: The March 2, 2020 Beach Reads

How Discomfort Makes Us More Creative

Institutionalizing creativity in professional organizations is incredibly difficult. Some books, like Ed Catmull's "Creativity Inc.," provide glimpses into creative companies; however, it almost always seems that an intangible secret sauce is at play. In this article, published by Insead, the author outlines some ways that creativity can be encouraged in businesses. One important standard is that there be psychological safety in organizations: "For professionals, a supportive culture is especially important, because going out on a limb with an unlikely idea carries heavy perceived risks...An atmosphere of psychological safety – where people generally feel less threatened and defensive – helps to tame this conservative bias." Once psychological safety is established, an interesting external force seems to push creativity: discomfort. "Creativity...thrives upon small doses of discomfort. A company, therefore, needn't be a paradise of peace to coax creative ideas out of the shadows – it can purposefully jolt them out by launching minor disruptions against a backdrop of psychological safety." Those industries that are fundamentally creative - Hollywood studios, video games, architecture firms, etc. - would all likely benefit from being intentional about creativity, rather than waiting for strokes of genius. From: The April 28, 2020 Beach Reads

Serendipity as a Skill

We find creativity and serendipity to be two of the most interesting yet underexplored areas of investing. Christian Busch, author of a new book The Serendipity Mindset, argues that serendipity isn't "just something that happens to us" but rather a mindset that can be cultivated. To Busch, serendipity boils down to an ability to notice the unexpected - connecting seemingly unrelated facts or events - and the tenacity and risk tolerance to follow through on that connection. Some best practices he suggests for developing an environment conducive to serendipity include conducting "project funerals" (or postmortems), reframing both capabilities and problems, placing diverse bets, and creating psychological safety within the group. From: The October 27, 2020 Beach Reads

08. Reflections

One of my favorite parts of composing Beach Reads is writing the "Reflections" section, which serves as a catch-all category to include articles that are not investing related. When I reviewed all the 2020 Beach Reads, two articles from the Reflections section really stood out. Both are about relatively obscure topics: avalanche mitigation and oceanic exploration. Both are long form, but absolutely compelling and illuminate parts of the world I was previously ignorant of. I hope you enjoy these random articles as much as I do.

Snow Science Against the Avalanche

This long-form article, from The New Yorker, is a great read about nature, science, and human foibles. In it, the author gives the history and current science around avalanche mitigation. Today, mountain-goers are often safe thanks to close weather monitoring, knowledgeable experts, and even artificially created avalanches. One of my favorite lessons from the article, that I think is applicable to investing, concerns those that tend to go back-country at mountains. These individuals are more at risk of avalanche; however, there are sensible precautions that can be taken to minimize the hazard. However, many ignore the risks. This is where the distinctly human element comes into play: "In the early two-thousands, when no amount of snow science seemed to be improving outcomes [of avalanches], the study of 'human factors' that contributed to avalanche accidents became popular. Tremper lists six common 'heuristic traps' that lead to avalanche fatalities: doing what is familiar; being committed to a goal, identity, or belief; following an 'expert'; showing off when others are watching; competing for fresh powder; and seeking to be accepted by a group. The Swiss pocket guide for backcountry skiers is full of technical information about slabs and slope angles, but it also includes the advice 'Don't give in to temptation!" Sound familiar? From: The March 30, 2020 Beach Reads

Thirty-six Thousand Feet Under the Sea

This was a wild read detailing the mission of a wealthy man and team of misfits to the deepest depths of the world. To help frame the absurdity of the situation, read this description of the submarine engineer: "Ramsay, who works out of a spare bedroom in the wilds of southwest England, has never read a book about submarines. 'You would just end up totally tainted in the way you think,' he said. 'I just work out what it's got to do, and then come up with a solution to it.' The success or the failure of Vescovo's mission would rest largely in his hands." With literal jumper cables helping run electronics in the submarine and the crew sailing around the world in a ship with holes in it, the success the team had is a testament to the vision of driven individuals, the mentality of outsiders, and the luck required to pull anything like this off. From: The May 27, 2020 Beach Reads


 

Disclaimer: To the extent that Beach Reads discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. The companies and or securities referenced and discussed do not constitute an offer nor recommendation to buy, sell or hold such security, and the information may not be current. The companies identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the companies identified was or will be profitable. Beach Reads does not constitute a recommendation or a statement of opinion, or a report of either of those things and does not, and is not intended, to take into account the particular investment objectives, financial conditions, or needs of individual clients.

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