17: Bitcoin & Higher Quality Mules, 10-K Diver on Dividends, Why Hasn't Pakistan Grown?, A Brief History of The Caribbean, London-based Afrobeat Eight-Piece, Get Your Daily Good Life©
“They lose the day in expectation of the night, and the night in fear of the dawn.” - Seneca (On the Shortness of Life)
Personal Reflection Space
Last week I read Seneca’s On the Shortness of Life as I was going for a day trip and had some travel time to get through a short essay. It is a moral essay written as a letter to Seneca’s father-in-law, Paulinus.
I found it really interesting as it gets across many of the stoic core principles (especially the relation to time and mortality). I was also a bit surprised by the sheer criticism of some activities/domains that I wrongly thought were some kind of “higher pursuit” in the eyes of Stoics, like higher public responsibilities (which help society move forward).
I think this quote summarizes the central argument made by Seneca in this essay:
It is not that we have a short time to live, but that we waste a lot of it. Life is long enough, and a sufficiently generous amount has been given to us for the highest achievements if it were all well invested. But when it is wasted in heedless luxury and spent on no good activity, we are forced at last by death’s final constraint to realize that it has passed away before we knew it was passing. So it is: we are not given a short life but we make it short, and we are not ill-supplied but wasteful of it… Life is long if you know how to use it.
Investing & Business
Bitcoin, Currencies, and Bubbles - N. Taleb
Reading time: ~20 minutes
New paper published by Nassim Taleb on cryptocurrencies and bitcoin in particular, exploring its different merits as store of value and hedge against inflation.
Insight #1: Fool’s currency or digital gold?
In its current version, in spite of the hype, bitcoin failed to satisfy the notion of "currency without government" (it proved to not even be a currency at all), can be neither a short or long term store of value (its expected value is no higher than 0), cannot operate as a reliable inflation hedge, and, worst of all, does not constitute, not even remotely, safe haven for one’s investments, shield against government tyranny, or tail protection vehicle for catastrophic episodes.
Insight #2: The premium of a superior technology
We presented the attributes of the blockchain in general and bitcoin in particular. The customary standard argument is "bitcoin has its flaws but we are getting a great technology, we will do wonders with the blockchain". No, there is no evidence that we are getting a great technology —unless "great technology" doesn’t mean "useful". And we have done —at the time of writing —in spite of all the fanfare, still close to nothing with the blockchain.
So we close with a Damascus joke. One vendor was selling the exact same variety of cucumbers at two different prices. "Why is this one twice the price?", the merchant was asked. "They came on higher quality mules" was the answer. We only judge a technology in how it solves problems, not in what technological attributes it has.
Last, a funny comment inserted in the paper about a way of putting a price tag on the volatile asset:
10-K Diver on Dividends
Reading time: ~10 minutes
Key takeways:
Insight #1: Dividends are important for a long-term investors, more than revenue growth, Free Cash Flow, or Stock Price
And what about all those other factors -- revenues, earnings, free cash flow? Well, they're important. But not because they affect the market price of the stock. They're important *only* insofar as they increase our *dividends*, or bring our dividends forward in time.
Insight #2: Investing in a steady business, pay a great attention to dividend yield and dividend growth rate
If our business were of type S, we'd expect $5 per share in dividends every year. These dividends wouldn't grow over time. Against our $100/share purchase price, that's a 5% IRR. Thus, for a Type S (Stable) business, our IRR is the same as our dividend yield.
Insight #3: Not all growth benefit investors (think about tech in particular)
Not all growth benefits investors. There's a "minimum ROIIC" threshold. Below the threshold, growth actually hurts IRRs. Investors would be better off with a dividend -- instead of the company re-investing earnings at such low ROIICs. For example, many tech companies today (eg, Facebook and Google) are retaining billions of dollars of earnings each year. In many cases, these earnings are simply piling up as cash on the balance sheet -- earning close to 0% ROIIC.
Thought-provoking stuff…
Why Hasn’t Pakistan Grown?
Reading time: ~10 minutes
Great post by Noah Smith on the reasons behind Pakistan’s relative stagnation over the last 3 decades while compared to its booming neighbors. The answer lies in political instability, a consumption-led economy, and surprisingly the fact that Pakistan has nuclear weapons:
Pakistan’s (Imaginary) Dutch Disease
Pakistan is behaving like a lot of natural resource exporters behave — but without the natural resources. Instead of a middle-income or high-income consumption society, it’s a low-income consumption society — keeping its people barely treading water, with lots of help from external largesse. That largesse is doubtless partly motivated by Pakistan’s strategic importance
Pakistan’s Game of Musical Chairs
This chronic instability means that every Pakistani leader is inherently insecure in their position. If the people get mad at a civilian leader, they might let a military leader kick them out of office. And if they get mad at a military leader, they might kick them out and bring in a civilian […] Instability could discourage growth-oriented policy in another way, too. Growth creates new power centers — newly rich businesspeople who are able to spend money influencing politics, as well as newly affluent middle classes who have different political wants and needs. Any regime that chooses growth will have to deal with the shifting sands of power that result from that growth. And if your sands already shift a lot, the added instability might be too scary.
On the curse of possessing the atom:
Pakistan has nuclear weapons. And that means that it doesn’t really have to get rich in order to guard against India; nukes guarantee its ultimate security. It might not be able to wrest Kashmir away from its neighbor, but it isn’t at risk of having further territory seized, or its capital occupied, etc. […] This is interesting, because it suggests one way that nuclear armament might be detrimental to growth. Push-button superweapons greatly reduce the need for a state to be rich and effective — or even particularly stable — in order to maintain security from external threats.
Arts & History
A Brief History of the Caribbean
Reading time: ~15 minutes
Another great post by Uncharted Territories. Still a HUGE fan of the topographic illustrations which are simply beautiful. Just have a look at Mexico:
In this issue, the subject is the Caribbean region. I won’t spoil the fun so definitely go read it now!
Why Mexico’s economy is the way it is. (hint: above picture, notice anything?)
Why the Caribbean mattered so much to Spain. Hint: It’s not because it was rich.
Why a handful of countries still have colonies there.
Why the US, pretty isolationist in the 19th Century, went to war with Mexico first and Spain later in the Caribbean
What was the role of the Aztecs in all of that.
What’s the deal with Cuba.
Treat for the Ears
Kokoroko (stylised as KOKOROKO) is a London-based Afrobeat eight-piece. In February 2019 they were named "ones to watch" by the Guardian, after their track 'Abusey Junction' garnered 23 million views on YouTube.
Exploring afrobeat lately, a few more gems coming in the following weeks!
Other Interesting Links
This channel is basically capsules of Good Life©
Until next week!
Antoine