This week's interesting finds

 This week in charts…and photos

Alan Lynam – EdgePoint Partner since 2011 (Toronto, ON – Bloor & Bay)

Inspired by Dude With Sign.   

U.S. equity and fixed income market capitalization drawdown   

Jerome Powell’s Inflation Whisperer: Paul Volcker

Without explicitly predicting a recession, officials have made clear their willingness to tolerate one. Mr. Powell has stopped talking about a so-called soft landing, in which the Fed slows growth enough to bring down inflation without causing a recession, except when asked. Instead, he has framed the Fed’s objective of bringing down high prices as an “unconditional” obligation and warned of even worse consequences for employment later if the Fed does not defeat inflation now. “We can’t fail on this,” Mr. Powell told lawmakers this summer. 

The upshot is that Fed officials, while reluctant to say it bluntly, could raise rates until they force unemployment higher and slow wage growth, the mirror image of their strategy through the end of last year. 

One Fed official, governor Christopher Waller, suggested this month the central bank would be comfortable with the jobless rate rising to around 5%, from its current 3.7%. That magnitude of increase has never occurred outside a recession. 

“If unemployment were to stay under, say, 5%, I think we could really be aggressive on inflation,” he said. After it goes above 5%, the Fed will face “obvious pressure to start making tradeoffs” between employment and inflation.   

The seven economic wonders of a worried world

In periods of gloom like this one, when commentators see nothing but faults in most countries, it is worth highlighting the few that defy the prevailing pessimism. Here are seven that stand out in a world tipping towards recession and higher inflation: Vietnam, Indonesia, India, Greece, Portugal, Saudi Arabia and Japan. 

They share some combination of relatively strong growth, moderate inflation or strong stock market returns — compared with other countries. By fascinating coincidence, most of them also defy deep biases about the supposedly dim prospects of certain countries, cultures and systems. 

Any of these economies could, of course, falter, undone by a turn in leadership, policy or by complacency. Still, these nations are already among the top performing stock markets this year. Amid well-founded worry about global prospects, a new set of winners is emerging. 

Private Equity Giants Are Having Cash Flow Problems 

At the core of the issue is that neither private equity powerhouse can generate enough cash to cover even its monthly interest repayments, not to mention operating costs such as staff compensation. At SoftBank, the largest recurring income is the dividend from its domestic telecommunications unit. Yet that can pay for only about 60% of its interest expense. The situation is similar at Fosun, with the added uncertainty that its cash on hand isn’t enough to cover its short-term debt and that about 45% of its debt will mature within a year, according to Moody’s. 

SoftBank says it’s always managed to keep a simple cash position, while Fosun says it remains the controlling shareholder of its pharma unit. 

With a private equity house, outside investors would normally look at the loan-to-value ratio as the main gauge of its liquidity. At only 14.8% and 41.5%, neither SoftBank nor Fosun seems troubled. But these are not normal times. Selling crown jewel assets now, even before a recession lands, smells of desperation. Neither house has proper liquidity management in order.

This week’s fun finds 

EdgePointer of the month

Diane Rossi

Launching a new company usually means having to make tough decisions. But as she often does, Diane made things easy for Tye, Geoff and Pat when it came to choosing someone to head the Operations team. Her “can do” attitude, seemingly endless positive energy and the now-more-than three decades of experience with almost every facet of operations made Diane the obvious pick. 

From the start, she’s had a focus for finding improvements and efficiencies to help things run smoother. Her wisdom, “roll up your sleeves” approach and quest to always be better keeps everyone on their toes. This holds true outside of the office as Diane often offers lifts home to partners who live nearby. But there’s a price as her productive nature turns the ride into a status update on current projects and other things on your “to do” list. It’s not all business though! Diane takes the time to enjoy life – whether it’s a glass or two of prosecco with friends and family or being up for a travel adventure at a moment’s notice! 

Before joining EdgePoint, Diane started her operations journey at Invesco Ltd. (previously Trimark). She was at the company for 14 years, serving as assistant vice president of operations and was instrumental in establishing its back-office administration team. Diane then continued to make an impact when she joined Burgundy Asset Management as head of client administration, transforming operations and cultivating a culture focused on providing superior service. 

Speaking of trips, here are some of Diane’s favourite travel destinations: 

• Italy (all of it) – History, wine, landscapes, great food everywhere. It has it all! While driving through Italy, you can enjoy amazing pasta for 10€ from Autogrill (a chain that’s the country’s version of a North American truck stop). 

• Denmark (Copenhagen) – Everyone’s happy there. Tivoli Gardens, their version of Disneyland, is a must-see and CopenHill, the world's cleanest waste-to-energy plant that also doubles as a ski hill. Who knew open-faced sandwiches (smørrebrød) were so delicious? 

 • Czech Republic (Prague) – A combination of rich history with a medieval feel. You can hear live music everywhere and it’s only a 4-hour train ride from Vienna! 

• Thailand (Phuket) – The friendliest and most peaceful people you’ll ever come across, along with the finest white beaches. 

Bonus – the book that changed Diane’s life: 

The Secret by Rhonda Byrne 

This book got me to EdgePoint. It will change your thoughts on the laws of attraction and can help you manifest what you want. 

EdgePoint Football Club returns 

EFC had another intra-company match before the weather gets too cold. Several people had to leave before the photo, but we’re happy to report no injuries other than a few bruised egos on the pitch. 

Off the Road Again: A Tour Bus Shortage Is Pricing Some Acts Out of Touring 

Demand for tour buses has been unusually high since early last year, when artists returned to the road after nearly a year of pandemic lockdown — and this year, top promoters report more touring stars and higher attendance than in pre-COVID 2019. Yet bus supply remains low. Experienced drivers have left the concert business for more stable trucking jobs, and tour bus companies have to wait longer than ever for repair parts due to international supply-chain problems. So many top bus companies, like restaurants and grocery stores, have raised their rates. 

“It’s worse than ever before. There’s just a shortage all the way around,” says Jamie Streetman, operations manager for Nashville-based Coach Quarters, which leases 20 buses, adding that industry prices have recently increased from $550 a day to $750 or $800. “There are tours being canceled left and right, because they simply have no way to get there.” 

Top acts can absorb the higher costs, or pass them along to consumers by raising ticket prices, but club-level acts often have no means to do so. Gas prices – although they’ve come down recently – have added to artists’ budgetary stresses all year. Buses are “much more expensive than prior to Covid,” says Lahteefah “Lah” Parramore, a partner with business-management firm Prager Metis, adding that artists are cutting budgets elsewhere to make up the difference. 

“Buses are raising their prices, and bands have to either pay it or lose the bus,” says singer-guitarist Michael Sweet of hard rockers Stryper, who recently postponed half their fall dates due to bus prices. “You budgeted $15,000-20,000 for fuel, and you look at the potential of that being doubled.” 

Home ownership leads to less happiness than expected, study finds 

A big yard, more space, or admiration from family and friends; the reasons for home ownership may vary, but the goal is the same: ultimately, it's intended as an investment in happiness. Prof. Dr. Alois Stutzer and Dr. Reto Odermatt of the University of Basel's Faculty of Business and Economics examined whether home-buyers' expected increase in life satisfaction actually materialized following their move into their own four walls. Their results are outlined in the Journal of Happiness Studies. 

The authors evaluated the statements of over 800 future home owners in Germany as recorded in the German Socio-Economic Pales (GSOEP). The dataset contains information about people's expected and actual life satisfaction. On a scale of 0 to 10, respondents were asked to evaluate their current level of happiness and to predict where they would fall on the scale in five years. Results indicated that homeownership does, in fact, result in increased happiness, but not to the extent predicted by the future homeowners themselves.

This week's interesting finds

This week in charts

Mortgage payments

Food costs and interest rates rise as energy and fertilizer supplies are hit by the invasion

As industry body Fertilizers Europe has warned:

“The European fertilizer industry faces an unprecedented crisis with gas prices soaring over 1000% from levels a year ago.”

“It is in full-fledged crisis because the European gas market is bust. The record high prices of natural gas, which represent 90% of industry’s variable production costs, makes it impossible for European producers to compete. As a result, over 70% of European production capacity has been curtailed.”

And as the World Bank and IMF have highlighted, there is a growing risk that famine will spread across parts of Africa and Asia.

It’s going to be a very difficult winter. Most of the world will be impacted as Europe bids up energy/food prices to keep its people warm and fed. And it would never have happened if policymakers had recognised the importance of geopolitics, energy markets and demographics.

Indonesia’s unexpected success story

In 2013 the US investment bank Morgan Stanley dubbed Indonesia as one of the “fragile five”, a group of emerging economies that it believed were especially vulnerable to a jump in interest rates in the US.  Almost a decade later, US interest rates are rising sharply, which is adding to the economic problems in the developing world. But Indonesia appears unruffled.  

At a time when the global economy is being battered by the war in Ukraine and the global energy, food and climate crises, Indonesia has emerged as an unlikely outlier, boasting both a booming economy and period of political stability. Gross domestic product expanded 5.4 per cent year on year in the second quarter, well above forecasts. The country’s inflation rate of 4.7 per cent in August, prior to a recent petrol subsidy cut, is one of the lowest globally. Its currency, the rupiah, is among the best performing in Asia this year and its stock market is hitting record highs.  The resource-rich archipelago, south-east Asia’s largest country with 276mn people, is riding high on soaring commodity prices. Exports rose 30.2 per cent year on year to $27.9bn last month, the most on record. The world’s largest producer of nickel, a critical component in electric vehicle batteries, Indonesia is putting in place plans to benefit from the upcoming boom in EVs.  

Much of the credit for this boom has gone to President Joko Widodo, who has managed to maintain popularity with both ordinary Indonesians and investors alike after eight years in power. A poll released this week by research firm Indikator Politik Indonesia showed 62.6 per cent of Indonesians approved of the charismatic former furniture salesman’s performance, down about 10 percentage points since before the fuel subsidies were cut but still leaving him as one of the world’s most popular democratic leaders. 

Construction industry struggles to meet unprecedented building cost inflation

Two years ago, Orion Construction started work on a 430,000-square-foot warehouse in Surrey, B.C. By 2021, construction costs had risen so much that its bid for a second, similar-sized building in the same area was 20 per cent higher. “If we had to bid for a similar project today, it would be 25 to 30 per cent higher [than in 2020],” says Josh Gaglardi, principal and founder of the Langley, B.C.-based design-build company. As costs of materials, labour, fuel and financing have soared in the past two years, he’s had to come up with creative strategies to stay profitable.

Because construction contracts are fixed price and there is typically only a small contingency margin, “any cost increases are generally on us, so we have to be very creative and pro-active, hedging costs where we can,” Mr. Gaglardi says. It’s a Canada-wide challenge as industrial building construction has seen unprecedented cost inflation since the start of the pandemic, says Susan Thompson, associate director of research for Colliers International Inc. in Vancouver. “As interest rates rise, there’s the potential for an inflection point that could see developers hit pause,” she says. “A lot of developers are carefully thinking through the facts before they go into the ground because they want to make sure they can cover their costs.”

But a pause may not happen soon. “The industrial market is still just blisteringly hot,” she adds. So far, the low vacancy rates in Vancouver, Toronto, Montreal and Calgary have meant developers can cover the excess costs by just raising rents and still have buyers.

Meanwhile, buyers are willing to pay more. Industrial and warehousing lease rates are expected to continue moving up because of pent-up demand and a potential shift of owner-occupied spaces to rental properties, commercial real estate firm JLL predicts in its recently released Q2 2022 Canadian Real Estate Outlook.

This week’s fun finds

How to Design the Perfect Queue, According to Crowd Science

Designing the perfect queue is no easy task—and the mass of people snaking through London is no ordinary queue. But help is at hand—from the behavioral science of queue theory to tricks of the trade more commonly used at theme parks, it’s possible to keep hundreds of thousands of people in order. Especially when most of them are Brits—a people famed for their ability to stand obediently in line.

“The perfect queue is one that doesn’t take longer than 10 minutes,” says Eric Kant, founder of Phase01 Crowd Management, a Dutch company that manages events—including long lines. (A 2017 study from University College London suggests that Brits get antsy when they wait longer than 5 minutes 45 seconds.) “From this perspective, it is not a perfect queue,” says Kant. But it is a well-prepared one, with meticulous planning, pinpoint precision, and wild logistics. In short, it’s a queue fit for a queen.

At its peak, the queue has snaked 5 miles across the capital, with an estimated 14-hour wait. When it reached capacity and closed on Friday, people defied government advice and formed a separate queue for the queue.

Designing the perfect queue then involves looking at two variables: how quickly people join the end of the line (the arrival rate) and how quickly they get through it (the service rate), says Still. The arrival rate is dictated by the capacity of London Underground and the mainline rail network. The service rate is trickier to calculate, because it depends on how quickly people pass by the queen’s coffin. Different people choose to mark their respect in different ways, which can take different lengths of time. One person’s quick walk past with a glance to the side is another person’s pause for reflection. Ideally, you want to ensure the service rate is equal to or greater than the arrival rate—if it isn’t, then the queue will grow.

There’s a significant amount of math and formulas that has been written about this over the years,” says Still, “but that doesn’t take into account psychology.” There are both positive and negative elements at play when it comes to the psyche of this particular queue. Almost no one within it will ever have waited as long for something in their lives, meaning they could quickly become frustrated.

But for die-hard royal fans determined to pay their respect, there’s another risk. “One of the concerns that has always been foremost is that if people are standing for 20 hours, then they may push themselves beyond their limits,” says Still. Three hundred people in line have been given medical assistance, with 17 taken to nearby hospitals, according to the London Ambulance Service.

If you read this on a smartphone, you’re probably not going to understand it

People wonder from time to time whether there is a difference if you read something on a smartphone, as we all do increasingly often, or if you read the same text on paper. Well, a group of researchers decided to do something about it and conducted experiments, where they asked 34 persons to read an excerpt from a novel, once on a smartphone and another time on paper. After the participants had read the excerpt, they were asked a couple of comprehension questions about the text. But to make things fun and interesting, the researchers also measured how often participants sighed, their breathing in general, and their brain activity in the forehead.

They found that people who read the excerpt on paper sighed more often than people who read the excerpt on a smartphone, possibly because of a feeling of general superiority over the poor fellows who can’t even put their smartphones aside during an important academic research experiment. Unfortunately, that’s not quite correct. People who read the text on paper sighed more often because they were adjusting their breathing and their mental focus.

Participants who read the text on a smartphone were mentally busier, with their forehead heating up more, indicating more intense blood flow and increased activity in this area of the brain. The frontal cortex is the location in the brain that makes sense of complex tasks and is involved in things like logical thinking and other higher cognitive functions. So, the people who read the text on a smartphone were more involved and understood more of the content. Wrong.

Reading texts on a smartphone requires more concentration and is harder for your brain because the text comes along with more distracting features like the blue light emitted by the smartphone. This makes it harder to just read the text and the brain must work overtime to digest all the different stimuli. Thus, people are not concentrating as much on the content itself and as a result, have a worse understanding of the content of the text than people who read the same text on paper.

Indeed, the people who read a text on paper can expend more of their mental resources on the content of the text and introspection. This introspection subconsciously allows them to realise when they are losing focus. Taking a sigh and readjusting their breathing then helps to re-focus. People who read a text on a smartphone didn’t do that as often because they were simply too busy to listen to their bodies, so to say.

This week's interesting finds

This week in charts

A rough year for the Bloomberg Global Aggregate Index

How gas rationing at Germany’s BASF plant could plunge Europe into crisis

Should the German state be forced to ration gas for industrial use this winter, [German chemical firm] BASF says it can reduce its consumption to a degree, by throttling individual plants or swapping gas for fuel oil at some production stages. It has already lowered its on-site production of ammonia, instead shipping in the chemical from abroad.

However, because the 125 production plants at Ludwigshafen are an interconnected value chain, there is a point where a drop of gas supplies would lead to a site-wide shutdown.

BASF-produced chemicals are used to make anything from toothpaste to vitamins, from building insulation to nappies. It is one of the world’s biggest manufacturers of ibuprofen for painkillers, and its single largest customer industry is the automobile industry, meaning sputtering pipelines in Ludwigshafen would directly affect carmaking regions such as Emilia-Romagna, Catalunya or Hauts-de-France.

One of the few remaining end products still produced at Ludwigshafen is AdBlue, a liquid used to reduce air pollution from diesel engines. It is a legal requirement for heavy goods vehicles, so a shortage could bring lorries to a standstill across Europe.

It’s Supposed To Be Hard

There is no world in which even the most talented comedians are consistently good.

Many things are governed by that truth.

Every investor knows, or should know, the truth about money management: More than 80% of professional investors underperform their benchmark (more depending on how you calculate it). Those stats are used in an often cynical way to show how the industry is broken, crowded, and ineffective.

The thing to keep in mind is that in any endeavor that has the potential to deliver big rewards, the best you can do is put the odds of success in your favor, which means recognizing that if you make 100 attempts at something, 99 of them might be failures but one might be an enormous win.

Comedy works like that, too.

The Chris Rock I see on Netflix is flawless. The Chris Rock that performs in dozens of small clubs each year is just OK. No one is so good at comedy that every joke they write is funny. So every big comedian tests their material in small clubs before using it in big venues. Rock explained:

When I start a tour, it’s not like I start out in arenas. Before this last tour I performed in this place in New Brunswick called the Stress Factory. I did about 40 or 50 shows getting ready for the tour.

The World’s Hottest Housing Markets Are Facing a Painful Reset

“We will observe a globally synchronized housing market downturn in 2023 and 2024,” said Hideaki Hirata of Hosei University, a former Bank of Japan economist who co-authored an International Monetary Fund paper on global house prices. He warns the full impact of this year’s aggressive rate hikes will take time to play out for households. 

“Sellers often overlook signs of shrinking demand,” he said.  

How exposed borrowers are to rising rates varies notably by country. In the US, for instance, most buyers rely on fixed-rate home loans for as long as 30 years. Adjustable-rate mortgages represented, on average, about 7% of conventional loans in the past five years. By contrast, other nations commonly have loans fixed for as little as a year, or variable-rate mortgages that move closely in line with official interest rates.

Australia, Spain, the UK and Canada had the highest concentration of variable-rate loans as a share of new originations in 2020, according to a May report from Fitch Ratings.

Focus and Finding Your Favorite Problems

“The greatest entrepreneurs had one idea. They built everything around that one idea. There might be things that spawn off of that idea later on. There are other businesses that can grow out of that, other business lines, other products. But fundamentally, they start with an idea.”

“Take a simple idea and take it seriously.” Charlie Munger

First, to get to financial security, let alone wealth, one needs at least a basic understanding of the rules of game, of the economic machine that rules our world. Investors (and entrepreneurs) are nothing if not dedicated students of that game and its repeating patterns and ideas. Learning their frameworks and methods can be immensely valuable.

Second, I personally don’t aspire to be the next Warren Buffett. But I view investing as a metaphor for life. Great investors tend to be students of the past, strive to see the present clearly, and have to place bets on an uncertain future. Great investing is also all about temperament, learning, and self awareness. I think studying their stories and mindsets is very valuable when we design our operating philosophy for life.

This week's fun finds

Japan launches campaign urging young people to drink more booze

The Japanese government wants the nation’s youth to get drunk for their country.

Officials have launched a campaign to lure more young people into buying booze so the debt-ridden country can reap tax revenue from liquor sales, according to reports.

The campaign comes as tax revenue from alcohol sales in Japan has dried out in recent years — potentially caused by an aging population and shifting tastes among young people.

The Trait That ‘Super Friends’ Have in Common

So what is the distinguishing quality of super friends? It’s secure attachment.

Attachment is the “gut feeling” we project onto ambiguity in our interactions. It’s driven not by a cool assessment of events but by the collapsing of time, the superimposition of the past onto the present. Understanding our attachment style is invaluable, not so we can mentally flog ourselves for biased interpretations but so we can gain more control over our social worlds. When we recognize how we contribute to our own relationship problems, we can try to change course—toward greater security and stronger friendships.

According to attachment theory, there are three major attachment styles: secure, anxious, and avoidant. (A fourth—disorganized attachment—is a mix of anxious and avoidant, but it’s under-researched in adults.) Secure people assume that they are worthy of love, and that others can be trusted to give it to them. People who are anxiously attached assume that others will abandon them—so they cling, or try too hard to accommodate others, or plunge into intimacy too rapidly. Avoidantly attached people are similarly afraid of abandonment; instead of clinging, though, they keep others at a distance. Attachment is a spectrum, and it can change over time; it’s common, for instance, to exhibit more insecure attachment when stressed. But we each have a primary attachment style we demonstrate most often.

We develop our attachment styles based in part on our early relationships with our caregivers. If our caregivers were warm and validating, we become secure. If they were unresponsive or overprotective, then we develop insecure attachment, wherein we believe that others are bound to desert or harm us. To protect against the mistreatment we expect, we act anxiously or avoidantly (or both). But attachment isn’t all our parents’ fault. Although early experiences with caregivers establish expectations about how we’ll be treated, these expectations likely evolve in other relationships. And they shape those relationships in turn.

How Do You Make the Perfect Toy?

Kids get older, and fads come and go. But some toys persist, almost stubbornly—artifacts passing from one generation to the next. In the toy business, these products are considered “classics.” It’s an amorphous category filled with all sorts of games and toys that have just a few things in common: namely, they are survivors in an industry where trends rule all. The Rubik’s Cube is, in many ways, the perfect example of a classic toy. More than 450 million are estimated to have been sold since 1978, with up to tens of millions of units still moving in a year. Etch A Sketch (180 million sold since 1960), Lego, Potato Head, Barbie, and, of course, Play-Doh are classics too. These toys are instantly recognizable but rarely advertised. They’re often low tech or analog. In fact, in a world full of screens, their tactility is increasingly part of the draw. Often, classic toys encourage what academics say is high-quality play, like problem solving or imaginative thinking. And, as some experts have found, such toys are highly nostalgic—conjuring warm, fuzzy memories in the parents who do the buying. This is how toys turn into tradition.

Most toys burn hot, bright, and fast, making Paw Patrol’s nine-year reign something of an anomaly. But, eventually, even Paw Patrol will fade. So why is it that some toys don’t? Many companies are trying to figure out the answer to this question, because as great as it is to invent the must-have toy of the season, it’s even better to create one that kids will be playing with 100 years from now.

 

This week's interesting finds

This week in charts

Days working from home

What’s needed to replenish European natural gas storage

Shareholders Stand Up for Profit and Against ESG at Chevron

In 2021 a Dutch climate nonprofit called Follow This submitted a shareholder resolution demanding that Chevron reduce “Scope 3 emissions.” The Environmental Protection Agency’s website defines Scope 3 emissions as those that are “the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain,” including employee commuting, leased assets and downstream use of products by customers.

Follow This expressly said it sought to combat climate change, not advance a business goal. Chevron’s board opposed the proposal. Yet the resolution earned majority shareholder support, including from its three largest shareholders at the time, Vanguard, State Street and BlackRock.

Scope 3 accounting is useless even in theory as a gauge of environmental impact, because it would count the same unit of emissions more than once. A gallon of gasoline used anywhere in Chevron’s value chain would count toward Chevron’s Scope 3 emissions and the Scope 3 emissions of each company involved. But many companies in Chevron’s value chain haven’t adopted such caps. Caterpillar hasn’t, so Chevron effectively bears full responsibility for the emissions of every Caterpillar backhoe that burns its fuel.

Scope 3 emissions reductions are adverse to the growth of any company that adopts them. Microsoft’s Scope 3 emissions ballooned by 23% in 2021 precisely because sales boomed: Each additional Xbox sold takes additional energy to power it. Such measures are particularly hostile to an oil company, whose only meaningful way to cut Scope 3 emissions is to reduce sales of its main product.

Chevron’s board partly stood its ground after the shareholder vote, declining to adopt “absolute Scope 3 targets.” But in September 2021, the company announced a new $10 billion in spending on low-carbon projects—triple its prior commitment. When asked by an investment analyst if these projects were a “value driver or a license to do business,” a Chevron executive responded “a little bit of both.” One month later, the company set specific targets for reducing Scope 3 carbon intensity and said it “supports the Paris Agreement” and a carbon tax. These are curious business decisions. Congress didn’t ratify the Paris Agreement—and it isn’t Chevron’s responsibility to do so. Successful companies seldom lobby for higher taxes on their products.

BlackRock denies Republican claims of climate ‘activism’

The world’s largest money manager has been under concerted attack for its use of environmental, social and governance factors in investing. It has become a target because chief executive Larry Fink has been outspoken about the need to address global warming.

Nineteen state attorneys-general, all of them Republicans, sent a letter to BlackRock last month accusing it of prioritising “activism” over fiduciary duty to their state pension funds.

“Our states will not idly stand for our pensioners’ retirements to be sacrificed for BlackRock’s climate agenda,” they wrote in the letter, which was led by Arizona attorney-general Mark Brnovich.

New York-based BlackRock responded on Wednesday.

“Climate change is testing the resilience of many industries and businesses. As prudent risk managers and stewards of our clients’ assets, it is imperative that we seek to understand and assess how these risks and opportunities will impact the companies in which we invest,” the company wrote to the attorneys-general.

YWR: To Thy Own Self Be True

My Dad passed away happy, and I think peaceful and content. He was the first person close to me who has passed away and it stirred up a lot of thoughts about the meaning of life and purpose. My Dad’s life bothered me because it hadn’t worked out in the end financially. He had tried many business ideas, but there was always some reason it didn’t work out. I always hoped there would be a pot of gold at the end of the rainbow for him, but in the end there wasn’t.

Wealthy people when they get close to death switch their energy to how they can improve the world, and how they can immortalise themselves somehow. They start foundations or donate buildings to universities with their name on them. They realise all their years spent building a successful hedge fund and might have made a lot of money, but really in the grander scheme of things the world could care less whether it existed or not. So they search for a way to do some good in the final years. But what if you are dying and there isn’t going to be a library or cancer foundation with your name on it. What are you passing on then? What was the point? As I was flying from Europe to Montana to see him this is what I kept wondering.

In the end I think the libraries and foundations are great and nice if you can make them happen, but for most of us what we pass on and how we improve the world is how we live our lives in all the small day to day interactions. In our own little way we are improving the vibrational frequency of the world. Then if we have kids we also hopefully pass on positive values, which will continue to help the world long after we are gone and then maybe those positive frequencies will be passed on in turn to our kids’ and kids. And maybe you will find as I have with all the people that contacted our family recently, that you have positively impacted more people than you ever realised.

I used to phone my Dad for advice a lot and when I was working at a hedge fund it would often be investment related. I would call him and the conversation would be something like “Hi Dad, sorry to call I’m just really stressed. I have done a lot of work on XYZ stock, I think it is great, but it is down 3 months in a row and I’m afraid if this stock doesn’t go up in the next 2 weeks and I have to put out a fourth newsletter talking about how badly it is performing all my investors will be annoyed with me, think I have no risk control and redeem, but I really like the stock and really we should be buying more, not selling on the lows. But I just don’t know what to do.” He didn’t need to know anything about XYZ stock, but he could tell what I should most likely be doing and his advice would be “To thy own self be true.” In this example, maybe I would try to find some practical middle ground like trimming it a little, or just staying put, but the way I took his advice was to make the very best investment judgement in the best interest of the client and to not be a muppet. If the investors redeem, they redeem, but in the face of uncertainty make the very best choice you can make and one you will be able to live with later.

This week’s fun finds

The most fun find this week comes from Italy, where partner Stefania and her high school-sweetheart Ryan were married in her family’s hometown. Five other EdgePointers made the trip to Il Bel Paese to help them celebrate. 

The mountains are nice, but that’s a stunning group!

Where We Find Meaning in the Everyday

The American Time Use Survey asks people to log their activities for a day, and in the most recent release, people also rated the meaningfulness of the activities on a scale from 0 (not meaningful) to 6 (very meaningful). Here’s how activity categories rated, sorted by most meaningful to least meaningful. Bar height represents how relatively common it was for people to engage in an activity.

The 25 club?

Charting Mr. DiCaprio’s partner preferences. 

(Note: Chart is out of date as Ms. Morrone turned 25 in June 2022. Coincidentally, they broke up recently.)

This week's interesting finds

This week in charts

Declining working-age population in the U.S., China, Europe and Japan

Capacity for ammonia, a key fertilizer, is down 

‘Most active fund managers should quit’

In [Blue Whale co-founder Stephen] Yiu’s view, the vast middle ground of more conservatively run active strategies, including most of the offerings from large fund houses, should go.

In the first half of this year, just 30 per cent of active funds have performed better than passive alternatives tracking the markets in which they invest, according to research from investment platform AJ Bell.

The bulk of the UK active management industry, Yiu argues, does not devote enough personnel to stock picking and tends to hedge bets by having a large number of stocks in a portfolio. Lack of time to do extensive research makes fund managers reluctant to make bold calls.

“There is a lot of career risk if you don’t have enough resources,” said Yiu, 44, who worked as a fund manager for larger companies including Artemis and Hargreaves Lansdown before Hargreaves backed him to launch Blue Whale, seeding the fund with £25mn of his own money.

The Impact of Uncertainty on Behaviour

There is an important distinction between risk and uncertainty (ambiguity). For example, when we roll dice, we can calculate precisely the odds of any outcome. And using actuarial tables, we can calculate the odds of a 65-year-old living beyond age 85. Uncertainty exists when we cannot calculate the odds. An example would be the uncertainty of another attack such as the one we experienced on September 11, 2001. Unfortunately, investors often confuse the two concepts. The following is an example of confusing risk with uncertainty. 

An insurance company might be willing to take on a certain amount of hurricane risk in Dade and Broward counties in Florida. They would price this risk based on approximately 100 years of data, the likelihood of hurricanes occurring, and the damage they did. But only a foolish insurer would place such a large bet that if more or worse hurricanes occurred than had previously ever been experienced, the company would go bankrupt. That would be ignoring uncertainty — that the future might not look like the past.

Investing in equities is always about uncertainty, not risk. In fact, that is exactly why the equity risk premium has been so high — investors demand a large risk premium to compensate them for taking uncertain “bets”. Those investors who recognise this will avoid the mistake of taking more risk than they have the ability, willingness or need to take, giving themselves the greatest chance of staying disciplined, adhering to their well-thought-out plan. That plan should anticipate the virtual certainty that bear markets will occur and that they are unpredictable in terms of when they will start, how long they will last, and how deep they will be. That understanding will help avoid the mistake of letting their stomachs, and not their heads, make investment decisions. 

This week’s fun finds

The dream (Thai ad)

We played this ad a few years ago at Cymbria Day about the difficulty of reaching your financial goals and how saving just isn’t enough. We thought it was fitting to show it again today:

If Studebaker were still building cars, would Canada still be able to enjoy its beloved Tim Hortons coffee and donuts?

By 1961, [NHL great Tim] Horton was ready to go into new car sales, so he added a Studebaker franchise to his Toronto location. Exactly how involved he was with the Studebaker operation, it's difficult to say: He lent his face and a couple of quotes about the 1962 Studebaker lineup to a couple of well-circulated newspaper ads for the dealership, but references to Tim Horton Motors and to its Studebaker sales tend not to delve much deeper. Horton himself said in a later interview that he didn't care to discuss his pre-donut ventures. "They flopped," he told a reporter. "Let's just leave it at that."

Perhaps Horton got involved with Studebaker only to see the handwriting on the wall. Perhaps he and Care weren't cut out for new car sales. Or perhaps they'd have been better off with another franchise. Whatever the case, Horton had moved on to other business models by the time Studebaker got out of the carmaking business. He first tried building a hamburger drive-in chain with at least three locations in Toronto and one in North Bay, but that too flopped.

Still, he didn't come away from those ventures empty-handed. His time as a car dealer brought him into contact with Jim Charade, who Horton partnered with to build the hamburger stands and, after those closed, to start a small donut-and-coffee shop in May 1964. As with Tim Horton Motors, Tim Horton Donuts operated out of a former gas station, and it's certainly plausible that Charade and Horton chose to open the donut shop in Hamilton due to Horton's familiarity with the city and the Studebaker assembly plant there. (The first Tim Horton Donuts store lies roughly a mile southeast of the former Studebaker plant in Hamilton.)

Why Don’t Millennials Have Hobbies?

When I asked Robert Stebbins, a professor emeritus of sociology at the University of Calgary who specializes in leisure studies, about whether any of my pandemic pursuits added up to a hobby, he told me that he’s been contemplating questions on the subject for the better part of fifty years. “Leisure, in a common-sense version of it, is fundamentally not work,” he told me over the phone. “It doesn’t define anything. It defines what it’s not.”

So, then, what is it?

“Few people in sociology seem to find this a remarkable or regrettable deficiency in the field,” Stebbins tells me. “Serious leisure,” a term he coined, is the systematic pursuit of an activity—like rock climbing or singing—that usually requires a “special skill.” In other words, we need to put serious effort into a hobby in order to reap its rewards over time. Just like we dedicate our time and energy toward a career, committing ourselves to a “serious leisure” activity is one of the keys to achieving a fulfilling life, he says.