WM 25 August 2023

Quotes

“the world will ask who you are and if you don’t know, the world will tell you”

“life really begins at 40. Up until then you are doing research”

“you are what you do, not what you say you do”

“until you make the unconscious conscious, it will direct your life and you will call it fate”

“I am not what happened to me. I am what I choose to become”

Carl Jung

or as Regie Miller said

"stop talking trash, do your game do the talking"

Lessons & thoughts

The way you do anything and the way you do everything. According to Bruce Lee, the right zone is what he calls unnatural naturalness or natural unnaturalness

The magic of thinking big

Positive Thinking

The 3 ennemies of success

Regret or discipline

An experiment done with starving rats has proven that fear is more powerful motivator than desire (hunger)

Who would have known that Pinochio " Pin/nut + eye, the story of a puppet who becomes a boy by learning from his sins (in order to avoid the peril they incur) and seeing himself for who he truly is. Some have argued that there is a deeper meaning. To achieve wisdom you must open up your third eye, the one that connects your soul (Rene Descartes thought it was the seat of the soul) to the universe. The third eye (ochio) could be located in the pineal gland (pin)

The pineal gland

Interesting to note that melatonin which makes you sleep is a derivative of serotonin which regulates mood, cognition, reward, learning and memory. It also regulates the guts and social behaviours. Melatonin regulates sleep.

Qubit vs Bit

Google's Sychomore just did in a few second what a supercomputer would have taken 47 years to do. Welcome to the world of quantum computing where the number of questions you must ask to get to an answer (0,1) is log2 but where you can speed up answer based on probable yes and nos

Negotiations

Public speaking and audience bonding

Excel at Excel

A question of time: the measure of time vs the experience of time

The link between the concept of time and the concept of change is profound and intrinsic. Time and change are closely intertwined, and understanding one often requires understanding the other. Here's a breakdown of their connection:

Time as a Measurement of Change: One of the fundamental ways we perceive time is as a measure of change. The passage of time is often associated with various changes happening around us – seasons changing, objects moving, people aging, and so on. Without change, the concept of time might not hold much significance.

Change as an Indicator of Time: Conversely, the occurrence of change helps us perceive the passage of time. We often gauge how much time has passed based on the changes we observe. For example, the growth of plants, the movement of celestial bodies, and even our own experiences and memories are all ways in which we gauge the passing of time.

Causality and Temporal Sequence: Change implies a temporal sequence – something happening before or after something else. Time provides the framework within which we can understand and order these sequences of events. The concept of cause and effect is closely tied to this sequence, as causes typically precede their effects in time.

Entropy and Irreversibility: Change is often associated with the concept of entropy, which is a measure of disorder or randomness in a system. As time progresses, entropy tends to increase, leading to irreversible changes. This connection highlights the directional nature of time – events usually unfold in a way that can't be fully reversed.

Perception of Reality: Our perception of reality is heavily influenced by the changes we observe. If nothing changed, it would be difficult to distinguish different moments in time. The unfolding of events provides us with a sense of progression and a framework for making sense of our surroundings.

Temporal Experience and Consciousness: Our experience of time is intricately tied to the changes we witness. Our memories are formed based on the changes we perceive, and our sense of the present moment is shaped by the ongoing changes in our environment and within ourselves.

Change as an Indicator of Time: Conversely, the occurrence of change helps us perceive the passage of time. We often gauge how much time has passed based on the changes we observe. For example, the growth of plants, the movement of celestial bodies, and even our own experiences and memories are all ways in which we gauge the passing of time.

In summary, time and change are intertwined concepts. Time provides the context for understanding the sequence and duration of changes, while change serves as a tangible indicator of the passage of time. Our perception of reality, our understanding of causality, and even our own consciousness are all deeply connected to the interplay between these two fundamental concepts.

Aristotle saw time as a measurement of a sequence of events or changes that occur that occur in the universe. Time is dependent on change. Without change there would be no need for time. Time is a measurement of the duration between the before and after. Time is continuous and infinitely divisible and yet saw that perception of time was different depending on one's perspective and circumstances (experience). Time is therefore linked to the concept of motion and it is a reality on its own but only understood relative to changes observed in the world. This concept was popularised by Einstein who even went on to say "time is an illusion", time appearing more slowly at high speed (= higher mass). Time is indeed influenced by our relative (e)motion and the effects of gravity, it is not absolute.

Adding value: save time, save money, save resources, save information + add beauty to utility

Technicals

The role of an investor is to position his/her portfolio on the receiving end of money flows

Lazlo Birinyi died this week at the age of 79. A rose to the ranks of market researchers in the 1980s to become a well known strategist and investment advisers, focusing on money flows as the best predicator of future market action. Instead of predicting what the market should do, he used the information the market gave as what it was doing.

Activist shareholders as catalyst

Morgan Stanley on P/E

The company's value is determined by the net present of future cash flows. This is the function of the Total Addressable market of this company and ability to grow its share of that market at certain economic returns: i.e. a function of opportunity + economics. Large market opportunities attract competition, so pay attention to barriers to entry and companies' ability to build competitive advantages for themselves. If you're a commodity company capable of generating $1 of earnings to perpetuity at a cost of equity of 8%, your P/E should be 12.5x i.e. the stock price should be $12.5. The cost of equity should be a direct function of the risk premium over the 10y "risk free" government bond rate itself reflecting (GDP+CPI+ term premium).

Since 1961, the average P/E of commodity business using the cost of equity of the SPX has been 10.7x fluctuating between 5.1x and 16.7x. For comparison the S&P500's P/E has displayed a 35% premium on average to this commodity P/E, this premium fluctuating from 20% to 65%.

A DCF shows the relative importance of growth and ROIC on multiples.

A company growing its NOPAT at 10% per annum with with ROIC of 20% and cost of capital of 6.7% would deserve a P/E 32x. If we grow this to 15%, the P/E rises to 52x while bringing down the growth to 7% would lower the P/E to 25x everything else equal.

Yet, if investors are overly focused on growth they miss two other important variable: the cost of capital (a function of interest rates and balance sheet useage) and ROIC (a function of competitive advantages, reinvestment needs and future capital allocations). Growth in that respect can be a curse, as it attracts competition and demands investments that may prove riskier or lower returns than historic ones. Moreover, very attractive businesses at a certain period can suddently become obsolete or face disruption.

Using the same company as before (10% NOPAT, 20% ROIC and 6.7% cost of capital), MS shows the sensitivity to a change in economic spreads (i.e what happens to P/E for the same growth if ROIC falls or if cost of capital rises)