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.

This week's interesting finds

This week in charts

European electricity prices

Median monthly mortgage payments in America

Methane hunters: what explains the surge in the potent greenhouse gas? 

Many researchers initially assumed the increase was linked to fossil fuel production. Methane is the primary ingredient in natural gas but is also produced by other human activities such as landfills, rice paddies and raising cattle.

In the past few years, however, that uptick has accelerated into a surge. The implications for global warming are immense: of the 1.1C increase in global temperatures since pre-industrial times, about a third can be attributed to methane. Atmospheric methane had its highest growth rate ever recorded by modern instruments in 2020, and then that record was broken again in 2021. Nobody knows exactly why.

Atmospheric methane (CH4 mole fraction, parts per billion)

“Methane is a very interesting type of greenhouse gas because it has so many kinds of sources and sinks that you have to keep track of,” says Dlugokencky. “You have to look at it like you are a detective trying to solve a criminal mystery, that is how I think of it.”

Global methane emissions and sinks estimate (2008-17 annual average, million tonnes)

Wetlands and cattle appear to be the biggest culprits, says Euan Nisbet, professor of earth sciences at Royal Holloway, University of London. “The biological sources are increasing faster,” he says. “The most intense growth seems to be coming from the tropics.” A global increase in cattle-raising, and in landfills, is also fuelling the growth in microbial emissions.

In an upcoming paper, Lan and Dlugokencky reach a similar conclusion: 85 per cent of the increase in atmospheric methane since 2007 is due to microbial sources. And about half of that is from the tropics.

This popular type of investment fund nearly always loses money

"When people chase these popular investment themes, they are going to be disappointed," said Itzhak Ben-David, co-author of the study and professor of finance at The Ohio State University's Fisher College of Business.

"These hot-topic funds are based mostly on hype and tend to lose value relative to the general market almost as soon as they are launched."

"These specialized ETFs are all about areas hyped in social media and other platforms as the 'next big thing.' But by the time these ETFs are launched into the market and available to investors, it is already too late to make money," Ben-David said.

"Specialized ETFs are basically boiled down to a soundbite: 'You should invest in electric vehicles,' for example. That's it. Most of the investors in this don't know anything about the stocks in the ETF's portfolio, the fees, the price to earnings ratio. They just want to be part of the trend."

This week’s fun finds

NASA posts what a black hole sounds like. One review: ‘Cosmic horror.'

 My handwriting is terrible. Should I be worried?

But the data show that, when it comes to learning, handwriting definitely matters. Several studies have found that both children and adults learn and remember more when they write by hand. “It stimulates the brain in a very different way than a keyboard does,” says Audrey van der Meer, a neuropsychology professor in Norway whose research on the topic is widely cited.

The withered state of writing has begun to affect other lives too, like those of courtroom handwriting experts. “It’s a concern,” says Steve Cosslett, a British forensic document examiner who has given evidence in hundreds of court cases since he began his career at a Home Office forensic science laboratory in 1983. To check the authenticity of, say, a signature on a will, you need a number of genuine signatures by the writer. But these are harder to find now that people don’t sign things like cheques any more. “People can’t provide sufficient reference material,” he says.

Chicken wing prices down ahead of football season 

This week's interesting finds

This week in charts

The 2020s might be the most volatile period in modern stock market history based on day-to-day change

SPAC Activity in July Reached the Lowest Levels in Five Years

Why invest in nuclear and natural gas?

The world is hungry for energy. Global energy consumption more than doubled between 1971 and 2020, and it’s projected to increase nearly 50% by 2050. It’s clear that we’re going to need a lot more energy than we’re generating now. Some people believe that when we learn to harness new sources of energy, we will stop using our current sources. But that has never been true. Historically, whenever we learned to harness a new energy source, we did not stop using the sources we previously relied on.

Nuclear and natural gas are reliable, affordable, and produce low emissions. They’re not perfect. But their shortcomings are more manageable than the alternatives, and their advantages can’t be beat.

The biggest advantage is that nuclear and natural gas are both extremely reliable sources of power. Nuclear is, in fact, the most reliable of all energy sources.

In addition, both nuclear and natural gas reduce greenhouse gas emissions. Nuclear power plants don’t emit any greenhouse gases or air pollution while operating. And natural gas produces about 50% of the carbon dioxide and just 10% the air pollutants that coal does.

Contrary to what many investors think, the biggest greenhouse gas reductions over the past 15 years haven’t come from increased solar and wind power, but from shifts away from coal and toward natural gas.

This week’s fun finds

EdgePoint shares the pitch with Insigne

To get warmed up for upcoming World Cup, we organized an internal “friendly” between EdgePointers. We happened to meet Toronto FC’s recent signing and Euro 2020 champion, Lorenzo “Il Magnifico" Insigne after the game. He graciously took a picture with us, possibly because he was impressed with the talent he saw displayed.   

Welcome to one of the newest Canucks

Congrats to Compliance team member Akhil becoming a Canadian citizen on Wednesday. We’re confident that he’ll keep his promise to faithfully observe the laws of Canada since his daily tasks include helping us follow the rules. 

Ranked: The Most and Least Livable Cities in 2022

This week's interesting finds

This week in charts

The growth in Canadian rentals

Differing inflation across eurozone countries makes monetary policy challenging for the ECB

Long-term CEO incentives (Twitter thread)

Waste Connections Inc. (TSX: WCN)

Alimentation Couche-Tard (TSX: ATD)

This week’s fun finds

Inside out

The Inside members of the Relationship Management team were able to find time between calls to get in some team building on the Toronto Islands.

The End of Manual Transmission

When it comes time to replace my current car, I probably won’t be able to get another like it. In 2000, more than 15 percent of new and used cars sold by the auto retailer CarMax came with stick shifts; by 2020, that figure had dropped to 2.4 percent. Among the hundreds of new car models for sale in the United States this year, only about 30 can be purchased with a manual transmission. Electric cars, which now account for more than 5 percent of car sales, don’t even have gearboxes. There are rumors that Mercedes-Benz plans to retire manuals entirely by the end of next year, all around the world, in a decision driven partly by electrification; Volkswagen is said to be dropping its own by 2030, and other brands are sure to follow. Stick shifts have long been a niche market in the U.S. Soon they’ll be extinct.

But the manual transmission’s chief appeal derives from the feeling it imparts to the driver: a sense, whether real or imagined, that he or she is in control. According to the business consultant turned motorcycle repairman turned best-selling author Matthew Crawford, attending to that sense is not just an affectation. Humans develop tools that assist in locomotion, such as domesticated horses and carriages and bicycles and cars—and then extend their awareness to those tools. The driver “becomes one” with the machine, as we say. In his 2020 book, Why We Drive, Crawford argues that a device becomes a prosthetic. The rider fuses with the horse. To move the tool is to move the self.

The decoupling of humans from their driving machines will accelerate in years to come. If the automatic transmission made the stick shift a monument to lost control, the autonomous (self-driving) vehicle aims to do the same for steering wheels. At that point, the loss will be so complete that it may not feel so alienating. Any pretense that the automobile is a prosthetic will be eliminated, so car passengers can move on to other things. Like people on a train, they might settle into a book or take a nap or open up an Excel spreadsheet.

The Michael Scott Theory of Social Class

I’m happy to finally share a thesis I’ve been chewing on for a little while. I call it The Michael Scott Theory of Social Class, which states: The higher you ascend the ladder of the Educated Gentry class, the more you become Michael Scott. 

(Spoiler warning)

Before You Fly The Nest: Advice for kids heading to college

• Explore, get outside your comfort zone, and experiment
• Seek balance
• Choose good friends
• Adopt good habits
• Avoid irreversible / catastrophic outcomes
• Don’t worry if it’s hard, especially at first

Hey, I know that guy: AI shows what the average Toronto man looks like

Someone very familiar with artificial intelligence asked a bot to show them what the average Torontonian looks like and then shared the results on Reddit.

According to AI, this is what an average dude in the city looks like:

This week's interesting finds

  

Wealthsimple valuation slashed nearly in half by largest shareholder, Power-controlled IGM

IGM Financial Inc., a subsidiary of Power Corp. of Canada, revealed in its second quarter financial statements released late Thursday that it had cut the valuation of its 24-per-cent stake in Wealthsimple to $492-million as of June 30, a 47-per-cent drop from its $925-million carrying value on March 31. IGM now carries its Wealthsimple stake at 42.6 per cent of its $1.153-billion valuation as of last Dec. 31.

In May, 2021, Wealthsimple became one of Canada’s most highly valued private technology companies when it raised $750-million at a $5-billion valuation. It was the second time in seven months that Wealthsimple had raised a nine-figure sum from private investors, as interest in its U.S. analog, Robinhood Markets, Inc., soared as millennials flocked to trading platforms to buy into meme stocks and cryptocurrencies.

Both have been hit by bad news this year. Robinhood this week said it would cut its head count by 23 per cent and revealed in its second quarter report it had experienced a drop in monthly active users and assets under custody. Robinhood previously cut 9 per cent of staff in April.

Meanwhile, Wealthsimple laid off 13 per cent of its work force in June. Wealthsimple CEO Mike Katchen said at the time clients were now “living through a period of market uncertainty they’ve never experienced before.” IGM’s statements Thursday suggest that uncertainty is weighing on Wealthsimple’s outlook and performance.

Unwanted debt from buyout boom stuck at investment banks

It is a dramatic shift from the start of the year, when banks were finalising debt for megadeals such as Advent International and Permira’s buyout of McAfee, worth more than $14bn, and Hellman & Friedman and Bain Capital’s $17bn purchase of Athenahealth. Even better, they were getting calls from buyout giants such as Blackstone, KKR and Carlyle as they plotted a $25bn carve-out of Sandoz from Novartis and soon would have a surprise deal, Elon Musk’s $44bn takeover of Twitter, to finance.

But then interest rates shot higher. Investors began to bet that the Federal Reserve would need to dramatically tighten policy to curb inflation, a move that sent bond prices tumbling, including the debt banks were holding on their own balance sheets to fund deals. In quick succession, Russia’s invasion of Ukraine and lockdowns in China to slow the spread of Covid-19 hit markets, and investors began to prepare for recession.

Banks provide a critical function for the leveraged buyout industry, as buyout funds take companies private with a mixture of their investors’ own cash and a substantial portion of borrowed money that is raised from groups of lenders.

Wall Street lenders step in when a takeover is first struck, guaranteeing to provide loans, junk bonds and revolving credit facilities for the deal. But there is often a significant lag between when a deal is agreed and when it is consummated, as the companies must win shareholder backing if they are publicly traded and clear any regulatory hurdles.

The financing packages can be hugely lucrative but they carry sizeable risks if the market shifts from when banks and private equity groups initially set the terms of the debt packages. Those terms include the yield on the debt, covenants that will protect buyers and discounts banks can offer the funds and investors who will ultimately be the long-term holders of the bonds and loans.

If they are unable to sell the bonds at those terms, banks deepen the discounts, first eating into the profits they had hoped to earn on the deal. As the discounts rise, banks begin to pay for the difference out of their own pockets.

Airplane-Parts Shortage Threatens More Disruptions to Air Travel

“We’re finding it really hard to get our hands on parts,” said Steve Rossum, chief executive of Florida-based Silver Airways LLC, which flies primarily to Caribbean destinations.

Mr. Rossum said one or two of his airline’s roughly 20 planes have been grounded on any given day due to needing parts, often those related to air-conditioning. One plane was marooned for more than a week with a broken axle because it was difficult to get specialized tools, he said.

German airline Deutsche Lufthansa AG has had to ground some aircraft because of waits for various components that are taking longer to source, people familiar with the matter said. Whereas the airline group had previously been able to source missing items from within Europe, it has had to broaden the search for some parts across the globe, especially for rarer items such as panels for its cabin interiors, one of the people said.

Qatar Airways has been avoiding disruptions by taking the unusual, and expensive, step of keeping aircraft—including one of its eight Airbus A380 superjumbos—on standby in case planes can’t fly because of parts shortages, said CEO Akbar Al Baker.

Toronto rents soar 20% to record amid high demand, fewer listings

The pandemic led to a sharp increase last year in apartments listed as people left city centres. Now, as the COVID crisis eases, some of them are returning. Rising interest rates, meanwhile, will price many potential homebuyers out of the market and keep demand elevated for rental units.

“Expect rental market conditions to tighten further in the coming months,” Kevin Crigger, president of the real estate board, said in the statement.

Rents hit four-year lows last year as demand dried up and listings surged. The previous record for one-bedroom rents was $2,262, reached in the third quarter of 2019.

Record container ship traffic jam as backlog continues to build

Port congestion had finally looked like it was easing in May and early June. Ship queues had fallen back to double digits. There were 92 vessels waiting offshore as of June 10, led by 25 off Savannah, Georgia, 20 off Los Angeles/Long Beach, 18 off New York/New Jersey and 14 off Houston.

Then things turned for the worse. The tally rose to 125 on July 8, 136 on July 13 and 140 on July 19.

With the count now rising to 153, the North American container ship queue has increased in size by 66% over the past seven weeks.

Fun finds

EdgePoint anniversaries

Internal EdgePoint partners have a tradition of bringing in food or treats on their work anniversaries. A recent example was a Hot Ones - inspired hot sauce tasting challenge with nuggets and chips. The sauces were chosen more for flavour than heat because we like each other, but they definitely had some kick to them.

Nine EdgePointers started the gauntlet, with only two failing to make it to the end. The rest of the sauces went into the communal fridge to help spice up future meals.

The Disastrous Record of Celebrity Crypto Endorsements

Matt Damon started touting crypto investing when Bitcoin was worth twice as much as it is now. Mike Tyson’s NFTs have plunged more than 90% since he introduced his collection. And investors who allege they lost millions on a pump-and-dump scheme are suing Paul Pierce.

Months into a rout for crypto assets, the full extent of the financial pain suffered by millions of everyday Americans is still being calculated. What's clear, though, is that scores of celebrities touted the life-changing power of crypto investing at the worst possible time — just as the speculative mania was approaching its peak. The entreaties to get involved in the space came in multiple forms — everything from big-budget TV ads trumpeting particular exchanges to cryptic tweets touting obscure tokens.

Scarcity is an Ally of Appreciation 

I never really put much thought into time management when I was young.

Now I’m much more deliberate with how I spend my time, mostly out of necessity. Responsibilities tend to increase with age so juggling work, family, friends, health and hobbies is no easy feat.

No one has it all figured out when it comes to balancing out your time allocation but here are some thoughts from my experience:

• I’ve learned to love routine when it comes to time management. There’s still room for chaos and spontaneity on occasion especially when you have kids but it’s nice to have a regimen to fall back on for some stability in an unstable world.
• Downtime in middle age is harder to come by. When kids come along one of the biggest things that goes to the wayside is downtime.
• Spending money on time is a good investment. One of the unsung reasons a lot of people choose to work with a financial advisor is because they value their time.
• Trading too much time for money probably won’t pay off. The perfect amount of balance in life is probably unattainable but too much time spent chasing money typically isn’t a good investment.
• Scarcity can add meaning and clarity. Maybe knowing the time you have to spend with loved ones is fleeting can help you appreciate it even more while you have it.

People Spend Too Much Time On Decisions with Equally Satisfying Outcomes

Researchers found that people spent longer choosing between options that were roughly equal in value than between options in which there was a large value disparity.

“Value” here means how much participants said they would be willing to pay for each item at the start of the study.  

When shown a disfavored food alongside a favored food, people chose fast. When shown a favored food alongside another favored food, people took a while. But this is irrational (at least in the economic sense).

When making decisions, we spend too much time choosing between options with roughly equal utility.