Canadian railroad bonds, conversation styles, exploding pagers, Taylor Swift, conference survival tips, the poetry of Abelard and Heloise, and more. Enjoy!
(1) Obsolete Yet Irredeemable Bonds
From 1893 to 1937, the Canadian Pacific Railway issued 4% “consolidated debentures” (bonds) with some notable features: (1) a perpetual term (no maturity date); with (2) no redemption mechanism; (3) a gold payment clause for semi-annual interest payments of one ounce of gold for every $1,000 of face value; and (4) a first lien secured interest on CNP’s assets. The debentures restrict CNP’s operational flexibility because they can’t sell assets (which would be a disposition of collateral) or obtain attractive first lien debt (because the first lien is already taken). The bondholders won’t sell without CNP paying an extortionate premium, and CNP won’t use judicial remedies because of the uncertain liabilities of gold payment clause: “If a court ruled that a fair conversion of the debentures required paying the same amount of gold [or an equal value] that would have been earned before 1933, the cost would be tremendous, akin to paying 400% interest instead of 4%, [which] reflects the 100x increase in the value of gold since the bonds were issued.”
(2) Economic Termites Are Everywhere
Profiles of some great businesses: VeriSign (internet domains); AutoDesk (architecture software); Linde (industrial gases); Assa Abloy (smart locks); Gracenote (entertainment metadata); LinkedIn (hiring); etc. Common themes: government-granted monopolies; switching costs; distribution moats; network effects; economies of scale built on data; small cost as a percentage of the P&L for customers; etc. The common result of these themes: pricing power (and the second-order result: higher margins). “These firms use the tactics of building a network or standardizing a business on their platform, then denying necessary scale to rivals through [tactics like] exclusive contracts. They often rely [on] patents, copyrights, trademark claims [or] government sanctions. [And] they are capital light.”
(3) Which US Stocks Generated the Highest Long-Term Returns?
Analysis of the returns of ~30,000 US-listed stocks over the past 98 years: ”Seventeen stocks delivered cumulative returns greater than five million percent (or $50,000 per dollar initially invested), with the highest cumulative return of 265 million percent (or $2.65 million per dollar initially invested) accruing to long-term investors in Altria Group. [The] annualized compound returns of these top performers relatively were modest, averaging 13.47% across the top seventeen stocks, thereby affirming the importance of “time in the market.” The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, earned by NVIDIA shareholders.” Consistency is crucial: a great short-term IRR is less important than long-term reinvestment at a predictable ROIC. For many of the top performers, consistency came from favoring M&A and capital returns over capex.
(4) How Israel Built A Modern-Day Trojan Horse: Exploding Pagers
“Israel put in motion a plan to establish a shell company that would pose as an international pager producer. By all appearances, B.A.C. Consulting was a [Hungarian] company that was under contract to produce devices on behalf of a Taiwanese company, Gold Apollo. [But] it was part of an Israeli front. […] B.A.C. did take on ordinary clients, for which it produced a range of ordinary pagers. But the only client that really mattered was Hezbollah, and their pagers were far from ordinary. Produced separately, they contained batteries laced with the explosive PETN.” Reminds me of the CIA busting cartels with fake encrypted phones.
(5) Are You a Jerk, or a Liar?
Communication styles are on the spectrum between facts and feelings. Conversations between those with opposing styles, without a recognition of stylistic differences, can cause friction. Fact-focused people (IQ) are “jerks” while feelings-focused people (EQ) are “liars.” But both types of conversationalists misattribute intentions and struggle to understand each others’ mindset: “To truth-seekers, community-seekers seem low-integrity, even Machiavellian, because they are willing to say whatever is expedient to navigate social situations. To community-seekers, truth-seekers seem cold, even sociopathic, because they aren’t willing to make standard moves in a conversation to make [others] feel comfortable.”
(6) How to Get Rich (Taylor’s Version)
Taylor Swift isn’t just a generational musician. She’s also uniquely good at the business of music. Her album re-recordings (“Taylor’s Version”) during the disputes over album masters with Big Machine Records was a publicity coup that drove the success of The Eras Tour and made her a billionaire. Behind the scenes, she and her team (still mostly her family) are aggressive negotiators and masters of controlling the public narrative: “The genius of Taylor Inc is the ability to pursue sharp business tactics while [being] careful not to undermine Swift’s wholesome image.” The best Swift in business since Gustavus.
(7) I Was 7 Words Away From Being Spear-Phished
“I [almost] fell victim to an advanced spear-phishing campaign. [… Hackers] had compromised email accounts and webpages at the University of Cambridge [and] used the accounts to run a spear-phishing campaign, with the goal of inducing targets to visit the [compromised websites with] malicious Javascript [that] exploited a 0-day vulnerability in Firefox, which allowed the attackers [to] drop malware directly onto the user’s operating system. [If] they had added the 7 words “THIS PAGE MUST BE VIEWED IN FIREFOX” on the page, I’d have been toast.”
(8) Getting Through The Hard Parts
On scaling startups and the importance of building repeatable processes: “One of the most ubiquitous parts of every investment we have made [with] early success is the inevitable “hard part” [when] the company becomes less reliant on heroic individual contributions and more on processes, systems, and culture to [keep growing] exponentially. If a business is full of individual contributors who do great work on their own, its growth is inherently capped to the individual contributions of its best people. Without the evolution [of] team-building, systems, processes, and eventually its culture, the individual contributors will inevitably be stymied.”
(9) Your Conference Survival Handbook
Back on the conference circuit… Some words of wisdom from The Economist: “If the breakout “tracks” do not appeal, then choose the hallway track: lingering in the corridors and chatting with people too important to be in sessions. […] Choose your seat wisely […] standing in the wings offers maximum flexibility. […] Circulate carefully: much better to invest in a few targeted conversations than to play business card bingo by skipping from one short chat to the next. […] Considering happy hour? Ask yourself: are these people really happy?”
Switching things up with some poetry… Based on the tragedy of Abelard and Heloise, this poem by Alexander Pope was a milestone in English literary history: “For hearts so touched, so pierced, so lost as mine. / Ere such a soul regains its peaceful state. / How often must it love, how often hate! / How often hope, despair, resent, regret. / Conceal, disdain—do all things but forget. […] Oh teach me nature to subdue. / Renounce my love, my life, myself—and you. / Fill my fond heart with God alone, for he / Alone can rival, can succeed to thee. / How happy is the blameless vestal’s lot! / The world forgetting, by the world forgot. / Eternal sunshine of the spotless mind!” Like that old Jim Carrey movie.
(0) Miscellaneous
Robert Caro and the art of literary non-fiction. The return of Abercrombie. Inside the bicycle’s conquest of Amsterdam. Excessive pricing power and decline of dating apps. Fighting mosquitoes with lavender extract. The rise of “creditor on creditor violence.” China has the most coffeeshops in the world. What it used to be like to look things up in the library. Technical explanation of the Crowdstrike mess. Brutal data from Carta on VC fund performance. State sponsored terrorism. Improving immigration for high-skilled workers. IKEA launches a classifieds market for used IKEA furniture. Man in the middle with MKBHD’s wallpapers app. SBF + Diddy = nightmare prison polycule.