This week's interesting finds

Mimi, partner since 2019 (Charlottetown, PEI)  

This week in charts 

Fossil fuels 

Yields   

Inflation 

Aging   

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.”

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.”

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."

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.