Friday, March 17, 2023

This week's interesting finds


Ruairi, partner since 2019 (Dublin, Ireland)  

This week in charts 

Canadian housing 

Lost decades 

Trans Mountain crosses $30-billion threshold

"Buying and building this pipeline will go down in the history books as one of, if not the, worst infrastructure decision a Canadian government has ever made,” said Greenpeace Canada senior energy strategist Keith Stewart. “It was always a disaster from a climate change perspective, but this is now an economic crime that has stolen $30 billion of public funds from real climate solutions." 

On Friday afternoon, the Crown corporation disclosed that TMX’s estimated total cost is 44 per cent higher than the previous estimate of $21.4 billion from February 2022. It chalked the skyrocketing costs up to global inflation, flooding in British Columbia, archeological discoveries and a handful of other factors, like “challenging terrain between Merritt and Hope,” B.C., and “earthquake standards in the Burnaby Mountain tunnel.”In a statement, Finance Minister Chrystia Freeland did not directly acknowledge the Crown corporation’s ballooning cost increase. Rather, she said Trans Mountain released an updated cost estimate and confirmed the project would be complete by the end of this year and operational by 2024. 

“The federal government acquired (Trans Mountain Corporation) and the Trans Mountain expansion project in 2018 because we knew it was a serious and necessary investment — one that is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient,” Freeland said. 

The statement did not address where the additional $9.5 billion of financing would come from. Last year — after Freeland promised no more public funds would be committed to the project — the federal government greenlit a $10-billion loan guarantee to cover TMX’s cost increases. 

Regardless of cost, Canadians already own TMX, and experts say the public will also end up on the hook for the $10-billion loan provided by Canada’s six biggest banks last year. Guaranteed returns on a loan that size are a great deal for the banks because even if Trans Mountain fails to pay back the entire amount, the federal government’s promise means there is no risk the banks will lose money. Loan guarantees like this are also fossil fuel subsidies, according to the World Trade Organization’s widely accepted definition.   

This week’s fun finds 

EdgePoint’s hot sauce review crew vs. Sprig’s Bhut Jolokia sauce 

Made from the ghost pepper, allegedly the “world’s hottest”. 

About 10 of us tried it out, but the warning on the back (“Not for people with heart conditions”) was scarier than the spiciness. 

Group rating: 

  • Spice: 7/10 (“The spice lingers, but not bad.”) 
  • Flavour: 4/10 (“Not too much flavour…but it’s smoky, so it would be nice mixed with something.”) 

Thanks for bringing it in, Akhil

The Daring Ruse That Exposed China’s Campaign to Steal American Secrets

Then the security officers told [GE engineer] Hua that the F.B.I. wanted to talk to him. Two F.B.I. agents, who were already in the building, entered the room. One of them was Bradley Hull, a bright-eyed man with a shaved head and a goatee. He started with the same questions that G.E. security had asked about Hua’s China trip. 

Hua was shaking with nervousness, one of the agents told me in an interview. He repeated the answers he had given to his employer’s security officers. Hull proceeded to ask more questions about the trip, giving Hua several chances to amend his story and signaling that he didn’t think Hua was being truthful. Finally, he confronted Hua with evidence showing that Hua had met with people other than just friends and family. He had also paid a visit to the Nanjing University of Aeronautics and Astronautics. 

Hua finally disclosed that he had given a presentation at N.U.A.A. about designing airplane parts out of composite materials. He said he had been careful to not divulge any information that was proprietary to G.E., even though he had downloaded certain files that belonged to his employer to help prepare his slides. As Hua provided more detail about his visit, Hull became convinced that he had been hosted at Nanjing by Chinese intelligence officials looking to cultivate the engineer as an asset, someone who could steal trade secrets for them. 

Hua was put on leave without pay by G.E. Aviation right after the F.B.I. interviewed him in November 2017. As he struggled to find paid work in the weeks that followed, his efforts on behalf of the F.B.I. kept him engaged. Under the agency’s direction, he kept up his exchanges with [Chinese Ministry of State Security agent] Xu over WeChat and email, expressing eagerness to share information from G.E. “Just recently I’ve heard the speculation about laying off in my department. I, of course, don’t want to be affected, but the possibility is there,” he wrote in a message on Jan. 23. “That’s why I’m trying my best to collect as much information as possible.” Xu asked if Hua could send material relating to the specifications and design process for building an encasement for fan blades. Hua obliged with a document titled “G.E.9X Fan Containment Case Design Consensus Review.” It had the appearance of being useful but didn’t contain anything of real value — G.E. Aviation, which was cooperating with the F.B.I., had altered the document. This bait worked: Xu, emboldened, sent a list of “domestic requirements” that he wanted Hua to collect information for, such as the type of software used in designing composite structures. 

The battle to boost our deep sleep – and help stop dementia

Doctors have long recognised the restorative properties of sleep, but it wasn’t until 2012 that Prof Maiken Nedergaard at the University of Rochester Medical Centre, in the US, and her colleagues identified a previously unknown plumbing system in the brain that springs to life during sleep, and enables the organ to clean itself. 

They found a series of tiny channels surrounding the brain’s blood vessels that allow CSF to filter in, and get pushed through the brain tissue by the pulse of blood alongside – and dubbed it “the glymphatic system”, because it is similar to the body’s lymphatic network except managed by the brain’s glial (support) cells. Having such a system is important because your neurons are extremely active during the day, and produce waste that needs to go somewhere. 

[Assistant professor of biomedical engineering Laura] Lewis has expanded on Nedergaard’s studies by persuading human volunteers to have their brains imaged while they sleep. “We saw these large waves of fluid flow that started to wash over the brain about every 20 seconds or so, and could travel quite long distances inside the brain,” she says. “As soon as people woke up, this flow pattern would disappear.” 

This system seems to be most active during slow-wave sleep – the deepest phase of non-rapid eye movement sleep, predominating during the early hours of the morning. 

For reasons that aren’t yet fully understood, people experience less of this kind of sleep as they get older. The glymphatic system also shows a dramatic decrease in efficacy as we enter our later years. “Your dishwasher only works at 20% capacity,” Nedergaard says. 

The key thing to focus on is sleep quality, which means avoiding coffee, alcohol, exercise and electronic devices in the run-up to bed, and maintaining a dark bedroom overnight. “If light is coming in through the window, or from pilot lights on electronic devices, even if it doesn’t wake you up, it may kick you into a lighter sleep stage and you won’t feel as well rested,” say Prof Lewis.

Friday, March 10, 2023

This week's interesting finds

Honglei, partner since 2020 (Toronto, ON)   

EdgePoint investments alongside its investment partners

As at December 31, 2022, our internal partners hold some $363 million in company-related products (for many of us, the lion's share of our investable assets) and are collectively one of our largest investors.

This week in charts 

Technology companies 


U.S. Federal reserve 

Natural gas 

Battery production


This week’s fun finds 

The return of the spicy challenge 

Thanks to Norm for bring in some spicy jellybeans for us to try. 

Five brave internal partners went from mildest (sriracha) to spiciest (Carolina reaper). Opinions were “unpleasant”, “didn’t taste good” and “why did I do that?” 

Hot sauce reviews will be starting up again soon. 

Can AI perfect the IPA? 

In 2021, Deep Liquid, an Adelaide-based company that partners with the Australian Institute for Machine Learning, helped nearby Barossa Valley Brewing create AI2PA: The Rodney, an AI-generated IPA. On each can of AI2PA, a QR code allows drinkers to submit their thoughts on the beer’s flavor, aroma, and mouthfeel. That real-time feedback goes straight into a data set that is then plugged into an algorithm that can adjust the recipe accordingly. 

“Since the biggest companies collect the most data, they’re the ones who’ve been able to harness AI,” says Deep Liquid co-founder Denham D’Silva. “We’ve flipped this and put the technology in the hands of the consumer, giving them direct contact that enables smaller brewers to leverage AI.” 

[History professor Malcolm] Purinton says making machine learning more accessible to smaller brewers will help them refine recipes, maintain quality control, and know exactly how much of each ingredient to use, limiting waste and saving money. 

Innovation is coming to beer’s ingredients, too. While water, barley, yeast, and hops have been on virtually every beer mash bill since the 8th century, the way brewers acquire and use these ingredients has shifted drastically in recent years. And that’s due largely to climate change. 

Brewers are teaming with bioengineers to explore the role of genetically modified yeast strains that can unlock more intense flavoring agents within hops during fermentation. This means that more of the tropical and fruity essences can be extracted from each flower, achieving the same big hop flavor with a much smaller load of hops. 

Eventually, the technology could save money, energy, and resources. But most brewers, adventuresome chemists and cooks at heart, are more excited about what flavors these genetically modified yeasts might one day unleash. 

Inside Canada’s Polar Bear Jail 

Immobilizing a 500-pound animal that can run on uneven terrains or hide among rocks takes a joint land and air effort. Hanging out off the side of the helicopter with a dart gun, Maclean’s work partner Ian van Nest, gave the ivory fugitive a shot of telazol, a quick-acting anesthetic. The on-the-ground team was ready with trucks and ATVs, but the bear got out of reach. “It took two-ish minutes for this bear to feel the effects of that drug,” says Maclean, but she managed to get onto the other side of a big berm where no vehicles could reach her. The team had to retrieve the problem girl on foot using a “polar bear stretcher,” essentially a massive board. “Seven of us carried this 500-pound bear over the berm and put it into the back of our truck,” says Maclean. “And then we drove it to the polar bear holding facility.” 

Years ago, a bear smacking at the window or breaking a door would likely be shot to avoid potential human fatalities. But over the years, that mentality has changed, influenced by tourists’ interest in the majestic creatures and by the fact that there aren’t many left. Only about 20,000 to 26,000 polar bears remain in the wild, says Geoff York, senior director of conservation at Polar Bear International, a nonprofit organization that works to preserve the animals. According to a recent Canadian government report, the polar bear population has dropped 27 percent over the past five years. With less and less sea ice forming every year, the bears have less time to hunt seals and build up necessary fat stores, leaving many bears to face starvation. Today, Churchill’s Polar Bear Alert program keeps a close tab on the hungry prowlers, putting them behind bars and out of harm’s way only when absolutely necessary. 

Colloquially known as the polar bear jail, the holding facility is a massive hangar of 28 cells built from cinder blocks with steel bar ceilings and doors. A second set of solid metal doors prevents bears from reaching out between bars. Most cells fit only one bear (otherwise they’d fight) but two larger cells are reserved for moms with cubs. Five of the cells are air-conditioned to make them more comfortable during warmer weather. Some bears are tranquilized when they’re brought in. Others arrive awake in huge culverts, traps baited with a chunk of seal meat that snap shut once bears pull on the food. 

The jail environment teaches the animals that approaching humans results in a boring and annoying experience, not worth repeating. That’s why bears don’t get to do much in their cells. They can perambulate back and forth among the cinderblocks or lounge on straw bedding or wood shavings. They can bang on the walls, which is usually a good sign, says Maclean. “If we don’t hear from a bear, we may occasionally peek in on it,” she says. “But a bear that’s banging is usually a good, healthy bear.” 

While “imprisoned,” bears get water or snow through a trough that runs across their cells, but no snacks—to avoid associating humans with food. “At that point, they’re already fasting,” explains Maclean, plus they’re not spending as much energy as they would be out in the tundra. “They’re losing almost the exact same weight that they would be if they were out on the land,” York says. “So they’re having a very similar experience in terms of fasting that they would if they were not in a facility.” 

Most bears stay in the lockup for 30 days or until the bay freezes. As soon as the ice forms, they are free to go—an annual spectacle many of the town’s residents come to see. Loaded into the culverts, the bears are brought over to the ice and the trap doors are lifted, setting them free one by one. The team drives a truck towards each bear, nudging it to head towards the ice. In 2022, there were only five inmates released when the bay froze. All the freed bears happily wandered off onto the ice, hungry for their long-awaited dinner.

Friday, March 3, 2023

This week's interesting finds

Malcolm, partner since 2008 (Elora, ON)   

This week in charts 


Canadian GDP

Global equity comparisons

Leveraged buyout transactions

Returns by generation


Nothing Beats Having a Great Partner (from the 2022 Berkshire Hathaway shareholder letter)

Charlie and I think pretty much alike. But what it takes me a page to explain, he sums up in a sentence. His version, moreover, is always more clearly reasoned and also more artfully – some might add bluntly – stated. 

Here are a few of his thoughts, many lifted from a very recent podcast: 

  • The world is full of foolish gamblers, and they will not do as well as the patient investor. 
  • If you don’t see the world the way it is, it’s like judging something through a distorted lens. 
  • All I want to know is where I’m going to die, so I’ll never go there. And a related thought: Early on, write your desired obituary – and then behave accordingly. 
  • If you don’t care whether you are rational or not, you won’t work on it. Then you will stay irrational and get lousy results. 
  • Patience can be learned. Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage. 
  • You can learn a lot from dead people. Read of the deceased you admire and detest. 
  • Don’t bail away in a sinking boat if you can swim to one that is seaworthy. 
  • A great company keeps working after you are not; a mediocre company won’t do that. 
  • Warren and I don’t focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time. 
  • Ben Graham said, “Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.” If you keep making something more valuable, then some wise person is going to notice it and start buying. 
  • There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice. 
  • You don’t, however, need to own a lot of things in order to get rich. 
  • You have to keep learning if you want to become a great investor. When the world changes, you must change. 
  • Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change, but better late than never. 
  • Finally, I will add two short sentences by Charlie that have been his decision-clinchers for decades: “Warren, think more about it. You’re smart and I’m right.” 

And so it goes. I never have a phone call with Charlie without learning something. And, while he makes me think, he also makes me laugh. 


I will add to Charlie’s list a rule of my own: Find a very smart high-grade partner – preferably slightly older than you – and then listen very carefully to what he says.  

The Myth of the Inevitable Rise of a Petroyuan

The inevitability of a petroyuan has become a popular take in the financial blogosphere: China flexing its muscles as an emerging power, elbowing one of the most visible and enduring signs of the 75-year US hegemony in the Middle East. 

If you believe in conspiracy theories, the introduction of a petroyuan, and the ensuing collapse of the petrodollar, would be a first domino, potentially weakening the whole US financial system. Very serious stuff. A redrawing of the global economic map. The backdrop to crisis and wars. 

Ask quietly in government circles in Riyadh, Abu Dhabi, Kuwait City or Doha about the petroyuan, and the response — even in the weeks following Xi’s visit to Riyadh — is unanimous: the petrodollar is here to stay. On a recent trip to the region, I didn’t hear a single official talking seriously about making preparations to introduce a new currency to the mix. The answers sound a lot like this: What’s in it for us? The greenback is freely convertible, the yuan isn’t; the dollar is liquid, the yuan isn’t. That’s the polite version; the more candid answers sounded even more emphatic about the absurdity of turning to a managed currency produced by an opaque and unpredictable financial machine. 

As in every conspiracy, there’s a grain of truth in the petroyuan tale, however. Xi did encourage the region to embrace the yuan for oil trade. But rather than pricing oil in yuan, as many had expected, Xi simply asked Middle East producers to accept payments in yuan. 

Ironically, the only new petrocurrency to emerge of late has been the dirham of the United Arab Emirates. India is using it to settle some oil transactions with Russia, bypassing US sanctions. But for the past 25 years, the dirham has been pegged to the US dollar — another indication that the petrodollar remains the only petrocurrency that really matters. 

This “Climate-Friendly” Fuel Comes With an Astronomical Cancer Risk

The Environmental Protection Agency recently gave a Chevron refinery the green light to create fuel from discarded plastics as part of a “climate-friendly” initiative to boost alternatives to petroleum. But, according to agency records obtained by ProPublica and The Guardian, the production of one of the fuels could emit air pollution that is so toxic, 1 out of 4 people exposed to it over a lifetime could get cancer. 

That risk is 250,000 times greater than the level usually considered acceptable by the EPA division that approves new chemicals. Chevron hasn’t started making this jet fuel yet, the EPA said. When the company does, the cancer burden will disproportionately fall on people who have low incomes and are Black because of the population that lives within 3 miles of the refinery in Pascagoula, Mississippi. 

Aside from the chemical that carries a 25% lifetime risk of cancer from smokestack emissions, another of the Chevron fuels ushered in through the program is expected to cause 1.2 cancers in 10,000 people — also far higher than the agency allows for the general population. The EPA division that screens new chemicals typically limits cancer risk from a single air pollutant to 1 case of cancer in a million people. The agency also calculated that air pollution from one of the fuels is expected to cause 7.1 cancers in every 1,000 workers — more than 70 times the level EPA’s new chemicals division usually considers acceptable for workers. 

In addition to the chemicals released through the creation of fuels from plastics, the people living near the Chevron refinery are exposed to an array of other cancer-causing pollutants, as ProPublica reported in 2021. In that series, which mapped excess cancer risk from lifetime exposure to air pollution across the U.S., the highest chance was 1 cancer in 53 people, in Port Arthur, Texas. 

The 1-in-4 lifetime cancer risk from breathing the emissions from the Chevron jet fuel is higher even than the lifetime risk of lung cancer for current smokers. 

Asked why it didn’t require tests to clarify the risks, a spokesperson wrote that the “EPA does not believe these additional test results would change the risks identified nor the unreasonable risks finding.” 

Whatever you call it, the creation of fuel from plastic is in some ways worse for the climate than simply making it directly from fossil fuels. Over 99% of all plastic is derived from fossil fuels, including coal, oil and gas. To produce fuel from plastics, additional fossil fuels are used to generate the heat that converts them into petrochemicals that can be used as fuel. 

Major mortgage lenders let borrowers shift unpaid interest onto principal to cope with rising costs

At least two of Canada’s largest mortgage lenders allow borrowers to shift a portion of their interest costs onto the principal owed on their mortgages, helping them cope with the impact of soaring interest rates. 

Both TD and CIBC have variable-rate mortgages that are similar to those of most of the other major lenders: The loans have constant monthly payments and the interest rate on the mortgage is connected to the Bank of Canada’s overnight lending rate. 

With every interest-rate hike, the cost of borrowing increases and more of the borrower’s monthly mortgage payment is used to cover the interest expenses. 

But with TD and CIBC variable-rate mortgages, borrowers may be allowed to go past the trigger rate and stick with payments that don’t even cover the full amount of the interest owed, up to a certain threshold. The unpaid portion of the interest is deferred and added to the mortgage principal and the borrower’s loan balance grows, or negatively amortizes. 

Under federal banking rules, a portion of a borrower’s loan must always be amortizing. But Canada’s bank regulator, the Office of the Superintendent of Financial Institutions (OSFI), has also said that it “expects lenders’ risk management to be responsive to changing conditions, and practices to be adjusted accordingly.” 

The federal mortgage insurer, Canada Mortgage and Housing Corp., allows the mortgage to grow up to 105 per cent of the variable-rate borrower’s original loan amount. 

The fact that CMHC rules allow for balances on insured mortgages to grow past the original amount raises questions, said Ben Rabidoux, founder of market-research firm North Cove Advisors. 

Mr. Rabidoux also sees another issue with policies that allow mortgage balances to grow: a likely outsized financial shock for homeowners when their mortgages come up for renewal. 

At renewal, lenders must bring the mortgage back in line with the original amortization schedule. For example, consider a borrower who bought a home with a five-year mortgage amortized over 25 years. After five years, their lender will recalculate payments so that the remaining mortgage balance will be paid off in the remaining 20 years. 

This week’s fun finds 

The Puzzling Gap Between How Old You Are and How Old You Think You Are 

But “How old do you feel?” is an altogether different question from “How old are you in your head?” The most inspired paper I read about subjective age, from 2006, asked this of its 1,470 participants—in a Danish population (Denmark being the kind of place where studies like these would happen)—and what the two authors discovered is that adults over 40 perceive themselves to be, on average, about 20 percent younger than their actual age. “We ran this thing, and the data were gorgeous,” says David C. Rubin (75 in real life, 60 in his head), one of the paper’s authors and a psychology and neuroscience professor at Duke University. “It was just all these beautiful, smooth curves.” 

Why we’re possessed of this urge to subtract is another matter. Rubin and his co-author, Dorthe Berntsen, didn’t make it the focus of this particular paper, and the researchers who do often propose a crude, predictable answer—namely, that lots of people consider aging a catastrophe, which, while true, seems to tell only a fraction of the story. You could just as well make a different case: that viewing yourself as younger is a form of optimism, rather than denialism. It says that you envision many generative years ahead of you, that you will not be written off, that your future is not one long, dreary corridor of locked doors. 

Rubin and Berntsen made a second intriguing discovery in their work on subjective age: People younger than 25 mainly said they felt older than they are, not younger—which, again, makes sense if you’ve had even a passing acquaintance with a 10-year-old, a teenager, a 21-year-old. They’re eager for more independence and to be taken more seriously; in their head, they’re ready for both, though their prefrontal cortex is basically a bunch of unripe bananas. 

Fat, Sugar, Salt … You’ve Been Thinking About Food All Wrong

[Nutritionist Carlos] Monteiro created a new food classification system—called NOVA—that breaks things down into four categories. Least worrisome are minimally processed foods, such as fruits, vegetables, and unprocessed meats. Then come processed culinary ingredients (oils, butter, and sugar), and after that processed foods (tinned vegetables, smoked meats, freshly baked bread, and simple cheeses)—substances to be used carefully as part of a healthy diet. And then there are ultra-processed foods. 

There are a bunch of reasons why a product might fall into the ultra-processed category. It might be made using “industrial processes” like extrusion, interesterification, carbonation, hydrogenation, molding, or prefrying. It could contain additives designed to make it hyper-palatable, or preservatives that help it stay stable at room temperature. Or it might contain high levels of fat, sugar, and salt in combinations that aren’t usually found in whole foods. What all the foods share, Monteiro says, is that they are designed to displace freshly prepared dishes and keep you coming back for more, and more, and more. “Every day from breakfast to dinner you are consuming something that was engineered to be overconsumed,” says Monteiro. 

On the ultra-processed diet, people ate around 500 extra calories per day and put on about two pounds. When people were on the whole-food diet, they ate fewer calories and lost weight—this is despite the fact that the meals on offer had roughly the same nutrient compositions. To [researcher Kevin] Hall, this implied that there was something other than salt, sugar, and fat content that was causing people to eat excess calories and gain weight. “It suggested that there was something different about this NOVA categorization system,” he says. Maybe there is more to food than its constituent parts.

A big factor might be the effect that ultra-processed foods have on our brain. Alexandra DiFeliceantonio is an assistant professor at the Fralin Biomedical Research Institute at Virginia Tech Carilion who studies how junk food interacts with the brain’s reward systems. “We know a lot more about fat, sugars, and carbohydrates, and how those are signaled in the gut and to the brain. We know a lot less about the role of ultra-processing in altering any of those signals,” says DiFeliceantonio. 

Her hypothesis is that since ultra-processed foods are rich in easily available calories, they induce a potent reward response in our brains that keeps us coming back for more.

Friday, February 24, 2023

This week's interesting finds

Mimi, partner since 2019 (Charlottetown, PEI)  

This week in charts 

Fossil fuels 

Hedge Fund Billionaire Extracts Billions More to Retire 

When Ray Dalio, the multibillionaire founder of the world’s biggest hedge fund, Bridgewater Associates, announced his retirement in October, both he and the firm he founded more than four decades ago treated the moment as celebratory. 

But neither Mr. Dalio, known for his creed of “radical transparency,” nor Bridgewater said at the time, or since, that he had hardly gone without a fight. His exit — partly spurred by controversial remarks he had made on television about China’s human rights record — followed more than six months of frantic behind-the-scenes wrangling over how much money his successors at the firm were willing to pay the billionaire to go away. 

In the end, Mr. Dalio, with an estimated net worth of $19 billion, agreed to surrender his control over all key decisions at Bridgewater only if the firm agreed to give him what could amount to billions of dollars in regular payouts over the coming years through a special class of stock. 

The back-and-forth between Mr. Dalio and Bridgewater’s senior leaders stretched on for much of 2022, with Mr. Dalio insisting that he would not simply hand over his life’s work. 

Finally, the two sides agreed on a steep price. Mr. Dalio would surrender his titles, take on a new role as “mentor to the C.I.O.s and investment committee,” and remain a member of the hedge fund’s board, according to an announcement by Bridgewater. (Last month, Bridgewater told clients that [Mark] Bertolini would give up his co-chief executive role to become a “C.E.O. mentor.”) 

Mr. Dalio also received a new, special class of personal stock that the firm informally calls “Ray’s shares,” which pay him the equivalent of a hefty dividend before anyone else at the firm is paid, two people with knowledge of the matter said. 

Based on those arrangements — as well as how long Mr. Dalio lives, and how long Bridgewater survives — the payouts could reach billions of dollars.  

10 Ways to Avoid Being Fooled 

Since our brains are made for small ideas rather than big ones, the best way to discern truth is not with elaborate, all-encompassing philosophies but with simple, easy to follow instructions called heuristics.

A heuristic is a mental shortcut, a way to shrink the sky so it fits the mind. Since a heuristic cuts corners and simplifies reality, it should be used as a rule of thumb and not a universal law. 

Below I present to you 10 heuristics that I use to avoid being fooled. 

  1. Epistemic Humility 
  2. Munger's Iron Prescription 
  3. Survivorship Bias 
  4. Wittgenstein's Ruler 
  5. Streetlight Effect 
  6. Popper’s Falsifiability Principle 
  7. Antiroutine 
  8. Opinion Lock 
  9. The Never-Ending Now 
  10. Journaling   

This week’s fun finds 

Have You Clocked These Boots? 

Boots, like other clothes, every so often become characteristic of particular moments in time. In the early 1990s, there were Timberlands; in the early 2000s, Uggs; and in the early 2010s, Red Wings. After years of an unpredictable pandemic in which many people sought comfortable, versatile clothes that didn’t compromise style, it seems that Blundstone’s Chelsea boots — a shoe free of laces and buckles — may be what fashion historians point to as the boot of the early 2020s. 

The Worth Global Style Network, a trend forecasting company also known as WGSN, named Blundstone a brand to watch in 2021. “It’s a brand that’s associated with traveling a lot of miles and being able to weather that punishment, providing durability, longevity and comfort in extremes,” Lorna Hall, the director of fashion intelligence at WGSN, said in an email. 

The frequency and zeal with which product recommendation websites, including those of GQ, New York magazine and even The New York Times, have written about Blundstone’s boots over the last few years may suggest that the brand is some hot new label. But as some of those websites have noted, the company was founded more than 150 years ago, in 1870, by the married couple John and Eliza Blundstone. 

Back then the founders imported Chelsea boots made in England, where the style originated, to the Australian state of Tasmania, where they lived and started the business. By 1900, the company had opened its first factory in Tasmania, and in 1932 the business was acquired by the brothers Thomas and James Cuthbertson, whose descendants are its current owners. Though some Blundstone footwear is still made in Tasmania, it’s also made in Vietnam, China, Mexico and Indonesia. 

Mr. Engel, the Blundstone executive, said that one of the most telling signs that the boots were reaching a wider audience came last fall. When his two children returned from their separate colleges for Thanksgiving, both told him they had seen a lot of Blundstones on campus. 

“I was just laughing to myself,” Mr. Engel said. He added, jokingly, “I didn’t even know that my kids knew what I did.” 

Whatever happened to middle age? 

When it comes to screen culture, middle age isn’t what it used to be. People magazine gleefully reported last year that the characters in And Just Like That, the rebooted series of Sex and the City, were the same age (average 55) as the Golden Girls when they made their first outing in the mid-80s. How can that be possible? My recollection of the besequined Florida housemates was that they were teetering off this mortal coil, but then everyone seems old when you are young. 

Back in the day, 40 was the marker for midlife, but now, finding consensus on when middle age begins and what it represents isn’t easy. The Collins English dictionary gnomically defines it as “the period in your life when you are no longer young but have not yet become old”. The Encyclopaedia Britannica says it is between 40 and 60. Meanwhile, a 2018 YouGov survey reported that most Britons aged between 40 and 64 considered themselves middle-aged – but so did 44% of people aged between 65 and 69. 

 “There’s no point trying to impose chronological age on what is or is not middle age,” says Prof Les Mayhew, the head of global research at the International Longevity Centre UK. “With people living longer, your 30s are no longer middle age; that has switched to the 40s and 50s.” But even then, he believes putting a number on it is meaningless. “In some cases, in your 50s, you might be thinking about a second or even third career, but for others you might have serious health problems and be unable to work. 

“This used to be a stage where you slowed down to enjoy life. It allowed a person to take stock and reassess,” says Julia Bueno, a therapist and the author of Everyone’s a Critic. “Now, it’s: ‘Retrain to be a psychotherapist!’ I think middle age reflects that you’ve still got life in you; you’re embracing a last hurrah. But I’m also aware that some people feel pressurised to reinvent themselves, to look fantastic, to not slow down or age gracefully. There’s the pressure to put retinol on your face, or erase or glam the greys. You’re not allowed to just be grey – it has to be glamorous.”

Friday, February 17, 2023

This week's interesting finds

The case of the missing Inside Edge E-mail 

For those of you looking forward to your weekly Inside Edge E-mail, we apologize for not sending it last week, due to a technical issue 

And now back to our regularly scheduled programming. 

Mike, partner since 2021 (Punta Cana, Dominican Republic)   

This week in charts 

Consumer spending   

2022 vs 2023 YTD performance   

You Might Live Longer Than You Think. Your Finances Might Not.

Demographers and actuaries make the following distinction between life expectancy and longevity: Life expectancy refers to the average number of years someone will live from a given age, whereas longevity refers to how long he or she might live if everything goes well, typically expressed as the probability of living beyond a certain age such as 85, 90 or even 100. 

A growing body of evidence shows that many people are ignorant of their so-called longevity risk—the probability of living a very long time—and the complications that presents. 

“A lot of people are thinking about life expectancy, but the extent to which people are asking questions about longevity is much lower,” said Abigail Hurwitz, a professor at the Hebrew University of Jerusalem who studies pensions and behavioral finance. 

Or, as Olivia Mitchell, a University of Pennsylvania professor and co-author on a pair of recent papers, put it: “The chance you might live a very long time in retirement and run out of money is something we haven’t focused enough on at all.” 

People can look up their longevity risk with an online Longevity Illustrator maintained by the American Academy of Actuaries and Society of Actuaries, based off the latest mortality data from the Social Security Administration. 

They might be surprised, especially by the probability that one member of a couple could live a very long time, said James Poterba, a Massachusetts Institute of Technology economics professor who has long studied retirement-savings patterns. 

What matters for most people is the life expectancy and longevity risk of their specific age group going forward. (If you’re 65, the death rates of people ages 0 to 64 are no longer part of your calculation.) Of course, pandemics, other health risks and medical advances might alter these calculations, but consider where things stand now.   

This week’s fun finds 

A comprehensive guide to the new science of treating lower back pain 

The big takeaway: Millions of back patients like Ramin are floundering in a medical system that isn’t equipped to help them. They’re pushed toward intrusive, addictive, expensive interventions that often fail or can even harm them, and away from things like yoga or psychotherapy, which actually seem to help. Meanwhile, Americans and their doctors have come to expect cures for everything — and back pain is one of those nearly universal ailments with no cure. Patients and taxpayers wind up paying the price for this failure, both in dollars and in health. 

When back pain strikes, your first instinct may be to avoid physical activity and retreat to the couch until the pain subsides. 

But doctors now think that in most cases, this is probably the worst thing you can do. Studies comparing exercise to no exercise for chronic low back pain are consistently clear: Physical activity can help relieve pain, while being inactive can delay a person’s recovery. 

Those researchers suggested that a combination of exercises — strength training, aerobic exercise, flexibility training — may be most helpful to patients, and that there seemed to be no clear winners among the different approaches but that each had its own benefits. 

Multidisciplinary rehab takes the “biopsychosocial” view of back pain — again, that the pain arises from the interplay of physical, psychological, and social factors. It can of course be tricky to disentangle whether mood disorders like anxiety or depression contribute to people’s pain, or whether they arise out of the pain, but either way, the biopsychosocial model views the physical as only one part of the equation. So these practitioners deal with what’s going on inside the head as part of their back pain therapy — helping patients get treatment for their depression or anxiety, or guiding them through cognitive behavioral therapy to improve their coping skills. 

Welcome to the Shoppy Shop – Why does every store suddenly look the same? 

Neil Shankar, a designer at the company formerly known as Square, has a term for these types of stores: shoppy shops. He told me the name resonated on his TikTok page, which dissects the consumer-packaged-goods industry. “There didn’t really seem to be a name for all these artisanal markets that are popping up that carry these brands,” he said. “You could walk into any one of these shoppy shops and you see Graza, you see Brightland, you see Diaspora, you see Fishwife. So there is kind of this symbiotic relationship between these modern brands and the curated shops that carry them.” 

Even though the companies sell different products, some similarities are impossible to ignore. “We need a new term for ‘internet-based small businesses that still use global supply infrastructure,’” said my friend, the culture writer Kyle Chayka, when I told him about this story. “We know these minimalist-ish generic aesthetics are not connected to any true local origin, but we see them as indicative of some kind of authenticity. My current thought is that they don’t feel local to a place, but instead they feel local to the internet, which is, after all, where we all live.” 

Successfully marketing a product so that it feels local everywhere is an art. I’ve started calling this crucial step in a product’s development “smallwashing,” i.e., when a brand positions itself as a small business and shows up on shelves as if it were small, even though it has probably been through at least one comfy fundraise and a hotshot General Catalyst VC sits on the board. (Bonus points if the company in question hires Gander to handle the design.) 

Faire is one of the true decacorns — with a $12 billion valuation, alongside household names like Shopify — in what’s known as the “e-commerce enablement space,” that is, the collection of companies that build the infrastructure allowing you and me to buy things on the internet in the first place. Founded by a group of former Block employees (that’s the company that used to be Square), Faire is a digital marketplace that makes it seamless for store owners to find new products and buy wholesale. And before you even ask, yes, of course, it’s algorithmic: Marketing copy on the site excitedly proclaims, “The more you shop our wholesale website, the better recommendations you’ll get.” Cha-ching! 

In other words, Faire is a website where people can purchase products; then those products are delivered to the purchasers. I asked how Faire is different from, say, Amazon. “It’s literally night and day,” Levitan said. “We only sell wholesale, so our customers are all retailers, as opposed to end customers like you or me, and we’re selling to these retailers who are really — I always say they’re the original influencers, the local store that has a shopkeeper with a great eye who really understands the pulse and the interest of their local consumer, and they curate unique products for that community.”

Friday, February 10, 2023

This week's interesting finds

Grant, partner since 2018 (Downtown Winnipeg, Manitoba) 

Photo by one of our advisor partners: Lonn Vokey   

Canadian personal debt 

A milder Covid winter 

Investors: The one thing separating excellent from competent 

The market exerts an enormous gravitational pull. Because managers are constantly being compared to it. This is great when they’re beating it, but horrible when they’re not: It creates a toxic mix of peer pressure and personal financial risk (chiefly getting sacked). The pressure to ‘copy’ the market is huge, so most end up mimicking it to one degree or another. 

Humans naturally fear an outsider, and acting differently marks you out as a threat (even if the thing you’re doing is perfectly harmless). We instinctively know this and feel the pressure to conform for safety’s sake. And you can see this allotment’s peer pressure a mile off, which is why, despite not appearing happy to, most are doing the same as everyone else. 

All great investors, past and present, are specialists, not generalists. They’re laser focused on doing one thing, and doing that one thing really well. 

The rub is that, no matter what your one thing is, it won’t work each and every year. This means there will be years when everyone else — the market — looks better than you (even Buffett — he’s had plenty of years like that). 

Now, if I (or you) pick managers who say they only do one thing, but stop doing it after a tough year or two, I’m stuffed. It means I’m spending too much time exposed to their one thing when it’s not working, and not enough time when it is. 

How America Took Out The Nord Stream Pipeline 

Last June, the Navy divers, operating under the cover of a widely publicized mid-summer NATO exercise known as BALTOPS 22, planted the remotely triggered explosives that, three months later, destroyed three of the four Nord Stream pipelines, according to a source with direct knowledge of the operational planning. 

Two of the pipelines, which were known collectively as Nord Stream 1, had been providing Germany and much of Western Europe with cheap Russian natural gas for more than a decade. A second pair of pipelines, called Nord Stream 2, had been built but were not yet operational. Now, with Russian troops massing on the Ukrainian border and the bloodiest war in Europe since 1945 looming, President Joseph Biden saw the pipelines as a vehicle for Vladimir Putin to weaponize natural gas for his political and territorial ambitions. 

Asked for comment, Adrienne Watson, a White House spokesperson, said in an email, “This is false and complete fiction.” Tammy Thorp, a spokesperson for the Central Intelligence Agency, similarly wrote: “This claim is completely and utterly false.” 

Biden’s decision to sabotage the pipelines came after more than nine months of highly secret back and forth debate inside Washington’s national security community about how to best achieve that goal. For much of that time, the issue was not whether to do the mission, but how to get it done with no overt clue as to who was responsible. 

There was a vital bureaucratic reason for relying on the graduates of the center’s hardcore diving school in Panama City. The divers were Navy only, and not members of America’s Special Operations Command, whose covert operations must be reported to Congress and briefed in advance to the Senate and House leadership—the so-called Gang of Eight. The Biden Administration was doing everything possible to avoid leaks as the planning took place late in 2021 and into the first months of 2022. 

The direct route, which bypassed any need to transit Ukraine, had been a boon for the German economy, which enjoyed an abundance of cheap Russian natural gas—enough to run its factories and heat its homes while enabling German distributors to sell excess gas, at a profit, throughout Western Europe. Action that could be traced to the administration would violate US promises to minimize direct conflict with Russia. Secrecy was essential.   

This week’s fun finds 

Don’t Just Spend Your Time – Invest It 

The go-to verb for what we do with time is “spend” it. Researchers say it might be better to think of time as something we invest, using our precious hours to accumulate a wealth of fulfillment and meaning that our future selves can draw on. 

This shift in thinking is particularly important because it might help us think longer term. Recent research by Hal Hershfield and Cassie Holmes, both professors at UCLA’s Anderson School of Management, and their collaborators indicates that those who think about their time over longer horizons—say, years or a lifetime—tend to be happier day-to-day and more satisfied with their life.

When we invest money, we tie up our present resources in exchange for future gains. But investments of time have the advantage of paying out in both present enjoyment and far-off benefits, says Prof. Holmes. 

Prof. Holmes recommends determining your own best investments by performing an audit of your time use for a week or two. This exercise, which Prof. Holmes details in her book “Happier Hour,” consists of recording, in half-hour increments, what you did and how happy you felt while doing it on a scale of 1 to 10. 

When choosing between different ways you could allocate your time, it can also help to imagine what your future self might hope you chose. 

“Who am I, what am I going to be doing in five years, 10 years?” asks Prof. Hershfield. “When we look back, we don’t want to regret finding that our time slipped through our fingers, being spent on stuff that turned out to not be all that meaningful.” 

This 22-year-old is trying to save us from ChatGPT before it changes writing forever 

After the fall semester ended, [Jeff] Tian traveled home to Toronto for the holidays. He hung out with his family. He watched Netflix. But he couldn't shake thoughts about the monumental challenges confronting humanity due to rapidly advancing AI. 

And then he had an idea. What if he applied what he had learned at school over the last couple years to help the public identify whether something has been written by a machine? 

Tian already had the know-how and even the software on his laptop to create such a program. Ironically, this software, called GitHub Co-Pilot, is powered by [ChatGPt’s predecessor] GPT-3. With its assistance, Tian was able to create a new app within three days. It's a testament to the power of this technology to make us more productive. 

Now humanity faces the prospect of an even greater dependence on machines. It's possible we're heading towards a world where an even larger swath of the populace loses their ability to write well. It's a world in which all of our written communication might become like a Hallmark card, written without our own creativity, personality, ideas, emotions, or idiosyncrasies. Call it the Hallmarkization of everything. 

Which brings us to the other purpose that Tian envisions for his app: to identify and incentivize originality in human writing. "We're losing that individuality if we stop teaching writing at schools," Tian says. "Human writing can be so beautiful, and there are aspects of it that computers should never co-opt. And it feels like that might be at risk if everybody is using ChatGPT to write."

Friday, February 3, 2023

This week's interesting finds

Pierre et Catherine, partners since 2009 and 2022 (360 St. James St. West – Old Montreal, Québec)

Translation: We’ve met the enemy and it’s us. Work with an advisor who can help you from yourself!  

This week in charts 

Retail traders   

International comparisons of household debt 

Big Oil mega-deals would put investors on the spot 

Exxon Mobil and Chevron are rolling in cash. So are Shell, BP and TotalEnergies, but investors value U.S. oil majors way higher than European ones. That raises the question of whether Exxon or Chevron might undertake a transatlantic swoop. 

The American duo’s valuation lead is tangible even though Shell’s 2022 results, released on Thursday, showed that earnings doubled year-on-year, matching those of its U.S. peers. $473 billion Exxon and $331 billion Chevron trade at 6 times expected EBITDA for 2023, twice the average of $210 billion Shell, $154 billion Total and $109 billion BP. One reason why is that as oil prices have soared, American drillers look more attractive than European ones that are also pressing into potentially lower-return renewable energy. 

One [question] is whether U.S. shareholders want the bother of a mega-deal in lieu of the huge buybacks and dividends they are currently trousering. Any cross-border deal would see Chevron’s Mike Wirth or Exxon’s Darren Woods take a big bet on continuing high oil prices, and also attract political heat. They might have to dispose of UK petrol station assets on competition grounds, and spin off BP or Shell’s solar and wind assets that form a part of Britain’s decarbonisation plans. While BP’s Gulf of Mexico assets should be attractive to a U.S. acquirer, other bits would be less so. 

The other question is whether UK-based institutions want to hold paper in a U.S. driller less focused on building out renewables. Some of them are genuinely attracted by Shell, BP and Total’s vision of being stewards of the energy transition, and might therefore require a bigger deal premium, or reject an offer outright. But even BP boss Bernard Looney appears disappointed with some of the returns from low-carbon investments, according to the Wall Street Journal. And despite the European groups’ environmental ambitions, shareholders have not rewarded them with higher valuations, suggesting doubts that they can make a profitable transition away from fossil fuels. A U.S. offer might therefore be a test of investors’ own green bona fides. 

Accelerating shareholder value creation in private and public companies 

Over the years, I have observed that private companies are more productive and have consistently outperformed public companies in value creation. I have tried to find the core reasons for this significant gap, and I want to share some of my observations with you. Although I have been associated with many private and public companies, the examples below are generic observations I have gathered watching the performance of many other companies. 

• Focus on product and innovation strategy – The biggest difference I see between private companies and public companies run by public company boards is that private companies have much more focus and board discussion on product strategy, innovation, technology roadmaps, and focus on a growth agenda. 

• Board Composition – Most private companies have board members who have significant ownership equity interests and hence have a direct responsibility toward company performance. 

• P&L Accountability – In private companies, I have seen a lot of effort by the board and the management to define true KPIs to monitor the operational improvements in the company. Private companies try to remove FX effects, deferred revenue effects, monitor billed revenue, monitor cash EBITDA vs. adjusted EBITDA, etc. 

• Management Compensation Tied to Outcomes – In private companies, management teams are heavily incentivized for shareholder value creation.   

This week’s fun finds 

The Daily Habits of Happiness Experts 

The meaning of happiness is, to an extent, subjective. But nearly every expert we surveyed emphasized the same cocktail of ingredients: a sense of control and autonomy over one’s life, being guided by meaning and purpose, and connecting with others. And they largely agreed that happiness can be measured, strengthened, and taught. “The more you notice how happy or how grateful you are, the more it grows,” Grizont says. 

The experts we surveyed had a handful of happiness habits in common. Spending time with family outside of the house, and with friends in a non-professional setting, were big ones: the majority did both at least once a week, and many gathered socially three to four times a week. John Zelenski, a psychology professor at Carleton University, describes social relationships as the chief building blocks of happiness. We all stand to benefit from close friendships, romantic partners, and a “general sense of respect and belonging in a community,” he says. 

Pursuing hobbies, such as art, music, cooking, or reading, was also universally important. Most respondents carved out space for these interests five to six times a week. Mental well-being has long been linked to sufficient sleep, and our respondents prioritized getting at least seven hours a night. Exercising or playing sports was another shared habit, with respondents saying they fit it in three to six times weekly.   

Why Eggs Cost So Much 

Prices have risen for just about everything over the past couple of years. But anyone shopping for groceries recently has probably noticed the cost of one item in particular: eggs. 

Keeping the supply of these eggs flowing depends on the hens that lay them. Like so much else, feeding hens their typical diet of grains like corn, oats and barley now costs more for egg farmers. This chart shows grain prices in 2022 compared with previous years: 

Another factor in egg prices is the supply of hens themselves. The population of egg-laying hens in the U.S. fell drastically when a highly contagious avian influenza broke out early last year and again in the fall. About 44 million egg-laying hens died as a result, or slightly more than one in 10 hens from the pre-outbreak population.