36: AMD + Xillinx, Mauboussin on Amazon in 1999, Amazon's New EV Trucks (100,000 by 2030), Jesse Livermore, Microsoft WFH, and Vendetta Knives

“may all your wounds be mortal”

May you grow up to be righteous
May you grow up to be true
May you always know the truth
And see the lights surrounding you
May you always be courageous
Stand upright and be strong…

May your hands always be busy
May your feet always be swift
May you have a strong foundation
When the winds of changes shift
May your heart always be joyful
May your song always be sung
May you stay forever young
Forever young, forever young
May you stay forever young

-Bob Dylan, Forever Young

The news of Facebook banning the QAnon lunatics reminded me of Popper’s Paradox of Tolerance:

The paradox of tolerance states that if a society is tolerant without limit, its ability to be tolerant is eventually seized or destroyed by the intolerant. Karl Popper described it as the seemingly paradoxical idea that "In order to maintain a tolerant society, the society must be intolerant of intolerance."

Popper expands upon this, writing, "I do not imply for instance, that we should always suppress the utterance of intolerant philosophies; as long as we can counter them by rational argument and keep them in check by public opinion, suppression would be most unwise. But we should claim the right to suppress them if necessary even by force..." (Source)

This will ring very true to anyone who has been part of an online discussion forum over an extended period.

The best communities can last decades if they are well managed. But to avoid destruction, it’s necessary to be willing to ban the few malevolent trolls, aggressive imbeciles, and sociopaths that always eventually pop up.

The forums with admins/moderators that aren’t ready to do that are doomed to fail, as the bad apples eventually drive away the regular contributors and lurkers. And since not every contributor to a community contributes equally, eventually the trolls and sociopaths drive away enough of the pillars of the community to cause terminal collapse.

It’s a case where the perfect is the enemy of the good; you may want to have perfect freedom of speech and tolerance for everything, but if you take that position, you end up with less tolerance, not more (and sometimes less freedom too, if the intolerants take over). The end result should matter more than some abstract purity of ideals that sound good on paper but don’t work in the complex system that is the real world.

→ If you’re a US citizen, please vote. ←


Investing & Business

AMD in ‘Advanced Talks’ to Buy FPGA-Maker Xilinx for ˜$30bn

I guess AMD was looking at Nvidia having M&A fun (I wrote some of my thoughts on Nvidia + ARM here) and didn’t want to be left out:

Advanced Micro Devices is in advanced talks to buy rival chip maker Xilinx Inc., according to people familiar with the matter, in a deal that could be valued at more than $30 billion and mark the latest big tie-up in the rapidly consolidating semiconductor industry.

The companies are discussing a deal that could come together as soon as next week, the people said. (Source)

Not clear how they’d pay for it, but issuing equity at 82x EBITDA to buy an asset trading at 26x EBITDA isn’t the worst starting point, and debt isn’t exactly expensive these days.

Xilinx is not a company I’m too familiar with, but FPGAs are a cool technology:

A field-programmable gate array (FPGA) is an integrated circuit designed to be configured by a customer or a designer after manufacturing [...] FPGAs contain an array of programmable logic blocks, and a hierarchy of "reconfigurable interconnects" that allow the blocks to be "wired together", like many logic gates that can be inter-wired in different configurations. Logic blocks can be configured to perform complex combinational functions, or merely simple logic gates like AND and XOR. […] FPGAs have a remarkable role in the embedded system development due to capability to start system software (SW) development simultaneously with hardware (HW), enable system performance simulations at a very early phase of the development, and allow various system partitioning (SW and HW) trials and iterations before final freezing of the system architecture. (Source)

Basically, what if you had hardware that was a bit more like software, in that you could change it when you need to, or make it less general and more specialized to a certain use case so that it performs better.

‘6 weeks later he called and asked for $7 million’

Fun thread by @StockTalk416 about his experience managing money for wealthy families:

Working in Private Wealth/Family Office world you see some crazy stuff. Family lawsuits, men marrying ex-wives sisters etc. It's a really wild world out there for the 0.1%. There are some amazing stories in floating around Toronto.

One cool story that isn’t greasy. We had a client with $350+mm. He was terrified of not having enough money. he didn’t spend at all. Like maybe $600k a year (tops). one day I (analyst) asked him why he never took money from his portfolio. He said he was worried there wouldn’t....

be enough left for his kids and when he got older. he was only about 50. We ran multiple scenarios for him with worst case stuff baked in. he couldn't believe it so we made the worst case even worse. He still had too much $$.

6 weeks later he called and asked for $7 million. we figured, new house, or a cottage or something like that. Nope. He took his family of 5 on a trip to Europe for 2 months. he rented a jet for 2 months. stayed in castles. went hot air ballooning. Spent $7mm in 60 days.

He wasn’t flying each day. he just rented the private jet for 2 months. it sat at airports for 3-4 days at a time. he just figured it was better than waiting in lines at airports.

I’m a pretty frugal person. But I’ve never felt like I was depriving myself.

Part of it is because the things that make me happy are not expensive (as long as I have an internet connection, good computing devices, books, somewhere nice to walk, a music streaming service, etc), and part of it is because I’ve always valued very highly having control of my own time. So when I was saving up capital, it felt way better than spending it did, because I was building to a bigger goal that would make a big difference to my every day life and happiness.

I got there, I now spend my days however I want, and it’s amazing (for me — not saying it’s for everyone, we all have to figure out what will really make us happy, the book ‘Stumbling on Happiness’ by Dan Gilbert is good on that topic. If you’re curious about the actual philosophy behind going independent rather than the caricature strawman often attacked, this video is a really good watch).

But those that are irrationally hoarding money out of anxiety about running out way past the point where that makes sense aren’t playing that game. They’d be way happier after spending some time figuring out what “enough” means for them, and what their actual goals are.

Michael Mauboussin on Amazon.com in 1999

This is really perceptive, especially for 1999:

Case Study 4: Amazon.com—An Options Smorgasbord

Nowhere does a real options approach apply more than at a company like Amazon.com. In fact, options thinking is built into the culture, which stresses flexibility and adaptation. Here is a partial list of the real options at Amazon:

  • Scope-up options. Amazon has leveraged its position in key markets to launch into similar businesses. For example, it used it market-leading bookselling platform to move into the music business. These can be considered contingency options.

  • Scale-up options. Flexibility options are part of Amazon’s announced growth in distribution capabilities. The company is adding capacity that will support significantly higher sales volumes in current businesses as well as capacity in potential new ventures. Management believes the cost of this option is attractive when weighed against the potential of disappointing a customer.

  • Learning options. The company has made a number of acquisitions that may provide the platform for meaningful value creation in the future. The recently acquired business Alexa is an example. Alexa offers Web users a valuable service, suggesting useful alternative Web sites. It also tracks user patterns. Amazon may be able to use this information to better serve its customers in the future.

  • Equity stakes. Amazon has taken equity stakes in a number of promising businesses, including drugstore.com and pets.com. These new ventures are best valued using options models.

Figure 7 shows a conceptual diagram of how value has been created at Amazon. The company started by selling books. So there was a DCF value for the book business plus out-of-the-money contingent options on other offerings. As the book business proved successful, the contingent option on music went from outof-the-money to in-the-money, spurring the music investment. As the music business thrived, the company exercised an option to get into videos. As time has passed, Amazon’s real options portfolio has become more valuable. For example, the recent foray into the auction business, unimaginable one year ago, was contingent on a large base of qualified users.

Many analysts assert that a business like Amazon cannot be realistically valued. We disagree. The key is attributing explicit value to the company’s real options. And that value is potentially huge.

Amazon fits the profile of a real options-laden business: smart management, a leading business franchise, and high end-market uncertainty. Real options provide an important dimension in understanding how the market is valuing the company

Conclusion

The standard DCF model is sufficient for valuing most traditional businesses, but it lacks the flexibility to value many new economy companies. Real options theory, a complement to DCF, adds that necessary flexibility. In the process, real options theory addresses important strategic and financial issues.

Although real options analysis has been well understood in the academic community for some time, we believe it will become increasingly important in mainstream security analysis. The primary catalyst is the accelerating rate of change—especially with regard to technology—and the commensurate rise of uncertainty.

Here’s the full paper, which covers more than just Amazon.

h/t Tren Griffin

Interview: ‘Jesse Livermore’

Good interview with the pseudonymous @Jesse_Livermore by Patrick O’Shaughnessy.

I first discovered Jesse’s writings on his site, Philosophical Economics, and while his interests in macro-economics are above my pay grade, his brilliance always shone through and his insights are satisfying in themselves.

This interview’s starting point is Jesse’s latest piece, ‘Upside Down Markets’.

It’s almost book-length, so not something you casually read over green tea, but if the podcast interview leaves you wanting for more, that’s probably the logical next step.

I also remember liking this piece form 2017: ‘Diversification, Adaptation, and Stock Market Valuation’.

Here’s the show notes, if you’re curious what they talk about on the new podcast:

Show Notes

(2:29) – (First question) – What is Upside Down Markets

(5:44) – Overview on monetary easing and the fed’s role in the markets

(9:42) – Why fiscal policy is such an important lever and the impact it has on the economy

(15:07) – The impact of stimulus on public companies’ fundamentals

(19:25) – The mix of assets in the market due to stimulus

(22:13) – What made 1929 so different to how we are reacting today

(26:14) – Negative concerns: too much money in the system and the risk of inflation

(32:43) – Will the pendulum swing back to labor and higher wages

(37:23) – How these changes could impact specific companies or sectors differently 

(41:34) – How he is applying all of this to his personal investment philosophy

(44:25) – Biggest risks still out there

(49:51) – Most interesting gap in his knowledge putting together this piece 

Link to the interview.

IBM Breaking Up With Itself

IBM will list its IT infrastructure services unit, which provides technical support for 4,600 clients in 115 countries and has a backlog of $60 billion, as a separate company with a new name by the end of 2021.

The new company will have 90,000 employees [...] IBM currently has more than 352,000 workers (Source)

It’s not exactly like they’re spinning off a small hidden jewel that is growing rapidly and profitably, but is hidden inside the giant.

They’re creating a new 90,000 employee giant company with, presumably, the same general IBM culture embedded deep in its DNA.

And the rest of IBM may be more focused on the “hybrid cloud”, but why is the execution going to be any better than it was in the past? Was the IT service unit somehow holding them back? How is this helping them compete better? I suppose it’s a continuation of the past few decades when IBM has been more a financial engineering project than a tech company.

Can’t say it has me very excited, but maybe I’m missing something… You can see the official release and presentation for more detail.

Amazon Unveils its Custom Rivian Electric Delivery Trucks

Amazon has invested in EV maker Rivian and made a massive order of electric delivery trucks: “10,000 Amazon custom electric delivery vehicles will be on the road delivering to customers worldwide as early as 2022 and all 100,000 by 2030.”

Of course, they will have Alexa voice controls…

They’ve unveiled what they will look like, inside and out:

Amazon’s custom electric vehicle is packed with industry leading safety, navigation and design features, including:

  • State-of-the-art sensor detection, a suite of highway and traffic assist technology, and a large windshield to enhance driver visibility.

  • Exterior cameras around the vehicle that are linked to a digital display inside the cabin, giving the driver a 360-degree view outside the vehicle.

  • Alexa integration for hands-free access to route information and the latest weather updates.

  • A strengthened door on the driver’s side for additional protection.

  • A “dancefloor” inside the driver’s cabin for easy movement inside the van.

  • Bright tail lights surrounding the rear of the vehicle to easily detect braking.

  • Three levels of shelving with a bulkhead door, which can easily be opened and closed for additional driver protection while on the road.

Microsoft Letting Employees Work-From-Home ‘Parmanently’

Microsoft is allowing its employees to work from home permanently… the software maker has unveiled “hybrid workplace” [...]

Microsoft will now allow employees to work from home freely for less than 50 percent of their working week, or for managers to approve permanent remote work. Employees who opt for the permanent remote work option will give up their assigned office space, but still have options to use touchdown space available at Microsoft’s offices. (Source)

First, I gotta say that for the leader in “hybrid cloud”, “hybrid workplace” is just good branding.

Second, “permanently” is a long time, so we’ll have to see if that changes in 5 or 10 years, but in the meantime, the trend is real, and every big company that adds itself to the list of “permanent” WFHs creates ripples in the ecosystem that will encourage others to do the same, make employees expect it from other employers, and further tip the balance. Even if Reed Hastings really doesn’t like it


Science & Technology

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How Much Cheaper is Maintenance and Repair on EVs?

Consumer Reports did a white paper study on the average maintenance and repair costs of gasoline cars vs plug-in hybrids vs electric cars.

Notable results are that estimated lifetime average repair and maintenance costs for BEVs and PHEVs are approximately half the cost for ICE vehicles. This is generally consistent with other sources that have estimated the relative repair and maintenance costs of EVs at 40 percent and 47 percent.

They also point out that most of the vehicles in the study with between 100k and 200k miles were early versions of the Tesla Model S and Nissan LEAF “suggesting that our projections may overestimate the long-term maintenance costs expected from current-generation BEVs as automakers learn from their early models”. In other words, it’s probably even lower than that.

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"The next level of chaos engineering is here! Kill pods inside your Kubernetes cluster by shooting them in Doom!"

Is this art or tech? Well, both. In any case, it’s the kind of GUI innovation I can get behind. Here’s the Github page.

New England Journal of Medicine on COVID19 Response in the US

Why has the United States handled this pandemic so badly? We have failed at almost every step. We had ample warning, but when the disease first arrived, we were incapable of testing effectively and couldn’t provide even the most basic personal protective equipment to health care workers and the general public. And we continue to be way behind the curve in testing. While the absolute numbers of tests have increased substantially, the more useful metric is the number of tests performed per infected person, a rate that puts us far down the international list, below such places as Kazakhstan, Zimbabwe, and Ethiopia, countries that cannot boast the biomedical infrastructure or the manufacturing capacity that we have. Moreover, a lack of emphasis on developing capacity has meant that U.S. test results are often long delayed, rendering the results useless for disease control.

Although we tend to focus on technology, most of the interventions that have large effects are not complicated. The United States instituted quarantine and isolation measures late and inconsistently, often without any effort to enforce them, after the disease had spread substantially in many communities. [...]

The United States came into this crisis with enormous advantages. Along with tremendous manufacturing capacity, we have a biomedical research system that is the envy of the world. We have enormous expertise in public health, health policy, and basic biology and have consistently been able to turn that expertise into new therapies and preventive measures. And much of that national expertise resides in government institutions. Yet our leaders have largely chosen to ignore and even denigrate experts.

The whole thing is straight 🔥 Here’s the link.

PlayStation 5 Uses Liquid Metal for Cooling

Because the system CPU runs at a "very high clock speed," Sony says a new liquid metal thermal conductor was needed to "ensure long-term stable high-cooling performance." [...]

Sony says it tested the PS5's liquid metal heating conductor for two years before putting it in the system.

You can see the rest of the first teardown of the PS5 by Sony here.


The Arts & History

Vendetta Knife

Corsican vendetta knife with floral detail. The blade reads: “Che la mia ferita sia mortale" - or roughly: “may all your wounds be mortal”

Source. Via Corry Doctorow

‘Why I don't use a mic’

Gamer culture could use an upgrade… Well, I guess that goes for humanity generally.

As Kurt Vonnegut Jr. said so well in his instructions to new babies being born in his book ‘God Bless You, Mr. Rosewater’:

“Hello babies. Welcome to Earth. It's hot in the summer and cold in the winter. It's round and wet and crowded. On the outside, babies, you've got a hundred years here.

There's only one rule that I know of, babies-"God damn it, you've got to be kind.”

Via Relatable Comics