Latitude Post

START-UPS: The Perils Of Growth At All Costs

Posted on June 20, 2021June 23, 2021 by Nicholas Peart

Start-ups are an important part of the business landscape. More crucially, the best start-ups provide much needed solutions to long standing problems. They provide real value to consumers. However, one thing I have observed over the years with certain start-ups is this mantra of ‘growth at all costs’.

If you are the founder of a start-up that provides a product or service that people really need and for a reasonable price, it is fair to say that this start-up has a bright future with a large potential for sizable growth over the coming months and years. That is all well. Yet, it does concern me when I observe the ones that have this ‘growth at all costs’ mindset.

No matter how driven or ambitious a founder may be, it is absolutely paramount that there is a healthy working environment amongst all the people who work at the company. There is currently a huge scandal with the UK craft beer company BrewDog over the maltreatment of many of its workers. BrewDog has been a huge success story. Ever since it’s founding a little over a decade ago, it has grown exponentially and is now the largest craft beer company in the country. It’s become a ubiquitous brand with it’s beers sold in all major supermarkets.

I could be wrong, but I am guessing that during those years when BrewDog was growing at such a fast pace, there was very much a ‘if you can’t stand the heat..’ atmosphere in the organisation. Even though BrewDog do make very good beers, the craft brewery industry is very competitive. There are many players and the way that BrewDog has been able to get to the position it is currently at today has been by scaling very fast in a relatively short period of time. By growing at such a rapid pace, it has now got to a size that gives it a clear edge over it’s competitors. If it had not embarked on this journey of aggressive growth it likely would have lost out to another competitor in the space.

Yet a big consequence of adopting an aggressive growth strategy is that it can create a toxic environment in the workplace. It suddenly becomes very easy for founders/chief executives to forget to care about the wellbeing of the other workers in the organisation as, in an almost single minded fashion, they have their eyes set on reaching their lofty targets they have set themselves out to achieve. They fail to understand that the workers are an integral part of the growth/success of their business. Without those workers, it is unlikely that their company would have been able to grow so spectacularly. This is especially true of those founders with very large egos and a lack of empathy for others.

A more extreme example of a growth at all costs business that makes Brewdog look like a plain vanilla enterprise is the rise and fall of office rental space company WeWork under the leadership of it’s colourful founder Adam Neumann. Unlike Brewdog, WeWork never made a profit and simply haemorrhaged cash. Billions of dollars of venture capital money was thrown at the company, most notably by Softbank whose founder and CEO, Masayoshi Son, really believed in the company. At one point WeWork had a valuation of over $40 billion. An eye watering valuation when one takes into account the fundamentals of the business.

WeWork also suffered from a toxic workplace culture. Those Brewdog workers, who via the Twitter group Punks With Purpose are bringing to light the less than perfect behind the scenes picture of the business, accuse the company of being ‘built on a cult of personality’. They take aim at how the company and it’s founders cultivated an image of the company as authentic (applying a ‘punk ethos’), caring about the environment, being forward thinking and progressive, and an amazing and cutting edge place to work at. Yet the irony is that it was anything but rosy. In their own words they scathingly say that “The true culture of Brewdog is and seemingly always has been, fear”.

Yet compared with WeWork this is small beer (no pun intended). The larger than life WeWork founder Adam Naumann would make make Brewdog co-founders James Watt and Martin Dickie blush. He took the term ‘cult of personality’ to another level. To the point where he was able to get some of the most powerful heavyweights in the venture capital space to invest megabucks in his business. Even though, with just a modicum of due diligence, it would soon seem apparent that WeWork was essentially a start-up with very poor fundamentals. The emperor had no clothes. Those VCs who were smart enough to see beyond the hype and mega personality of Neumann and actually did some stone cold research on the fundamentals of his business, saved themselves a packet.

Sometimes it is not necessary for a start-up to pursue a ‘growth on steroids’ strategy. It may be that you can create a lot of value and provide a unique solution without the need to aggressively grow. Sometimes large growth can happen by default if suddenly there is a massive demand for your products and services. And that is fine. There is nothing wrong with growth. Hell, there is nothing wrong with full on hyper growth. But not when it’s at all costs. Not when workers are not feeling valued and a dysfunctional and toxic workplace environment manifests.

By Nicholas Peart

June 20th 2021

Image: satyatiwari

One Golden Rule To Heed Before Investing In A High Risk Venture

Posted on June 10, 2020 by Nicholas Peart

Before you decide to invest in a company, start-up or venture that is highly risky, there is one very important rule that all investors should heed. We are all aware of the obvious rules such as doing sufficient due diligence and only investing what we can truly afford to lose. However, a less obvious rule, and the one which I am talking about in this article, is focused on having Skin In The Game.

The origin of this phrase is debatable although a quick Wikipedia search tells me that it originates from derby races whereby the owners of the horses taking part in these races have ‘skin’ in ‘the game’. More recently, it has been written about extensively in the works of Nassim Nicholas Taleb. Put simply, it refers to how much ‘skin’ a person has in something or how much personal risk they are willing to take on. For example, in the case of entrepreneurs or founders of businesses, an entrepreneur who has the vast majority of their net wealth tied up in their business has considerable Skin In The Game. Even though they will be handsomely rewarded if the company is successful, they will also go down with the ship and face financial ruin if the company goes belly up. This latter point is crucial.

When I analyse high risk ventures, one thing that is a huge red flag for me is a genuine absence of Skin In The Game. A founder or director of such a company needs to have the majority of their own capital invested. ‘Share options’ do not count. However, ‘director buys’ do.

Another red flag is when founders and directors draw huge salaries, especially if the company is not currently generating any revenues. If a company is not yet making money, a company will be raising money via debt or equity placings (issuing more shares) to keep it a going concern. This is precious cash and should not be eaten up in the form of generous remuneration packages. Alarm bells should be ringing if this is the case.

Founders and directors who have a considerable amount of Skin In The Game in a venture is an indication not only that they truly believe in what they are working on and executing, but also that they are motivated and kept under a considerable amount of pressure to ensure that the company succeeds. They believe in the company so much that they are more than willing to match their considerable belief via taking on a considerable amount of personal monetary risk. If the company doesn’t succeed they will be financially ruined. There will be no government or organisation ready to bail them out if they fail.

I have seen so many high risk ventures collapse where the founders and directors have come out of the wreckage mostly unharmed. They always drew big salaries and their equity stakes were mostly in the form of options rather than purchased with their own money. Founders and directors with little to no Skin In The Game are not under any acute pressure to contribute in the best ways they can. They don’t believe in the company they are working for nor is their heart really in it. It is merely a gravy train.

Thus, before deciding to invest in a company, start-up, venture or anything that is highly risky, one should always ask, ‘How much Skin In The Game do the founders and directors have?’

By Nicholas Peart

Image: valueresearchonline.com

THE FOLLY OF MARKET TIMING: Focusing On Percentages Not Prices

Posted on June 7, 2020 by Nicholas Peart

It is natural to get in the habit of trying to buy or sell shares at a particular price. Sometimes we may get lucky and reach our desired entry or exit point. Other times, we may not always get what we want in this respect. I fall into this trap myself a lot of the time, yet, perhaps unwittingly, am I playing a mugs game?

The future is uncertain. Nobody can predict the future and don’t believe anyone who tells you otherwise. I have written articles where I have talked about where I think certain things may be going, but the truth is anything can happen. I know nothing. Even if we have deep and unmatched levels of foresight we can so very easily, in the words of Nassim Nicholas Taleb, be fooled by randomness. We can be knocked off our perch by completely random and unforeseen events way out of our control. This is one reason why it is important to have a diversified and balanced investment portfolio. If one sector or stock is particularly badly hit by some unexpected event, at least your other investments in other stocks and sectors are not affected. That old chestnut of ‘not keeping all your eggs in one basket’, whilst it may sound hackneyed, still rings true.

Whilst we may or may not be able to get our desired buy or sell price for a particular stock, one thing we do have complete control over is how we weigh and structure our investment portfolios. There may be a company you highly rate and want to invest in, but you want to invest in it at the right price. Right now, you consider the current price too high and have lower price in mind that you hope will arrive. But what happens if that price never comes and instead the share price of the company just continues to climb in value? Instead of hoping to get the right price, or worse, the lowest price, why not say to yourself, ‘What percentage of my total investment portfolio do I want this company or security to represent?’. I think dealing in percentages rather than prices can not only help you to be a better investor, as it can take away a lot of the unnecessary stress and anxiety associated with trying to buy or sell a security at ‘the right price’. It can also help you overcome deeply ingrained cognitive biases.

When you focus more on what percentage of your investment portfolio you want a security to represent, rather than chasing a price, that can give you more control and balance. If the investment goes down in value, the percentage weighting it represents in your portfolio also goes down. If the investment goes up in value, it’s percentage weighting also goes up. By this you can then decide whether you want to be more overweight or underweight in the percentage weight of this particular security. If you want to be more overweight, you buy more. If you want to be more underweight, you sell a portion.

The percentage of what a security represents of your total portfolio is in many ways more important than the price you pay for it. Even if you end up overpaying for a stock or security, if it represents a percentage of your portfolio that is not too detrimental to the overall performance than it is not so bad.

By Nicholas Peart

Image: datanami.com

The Anti-Tourist

Posted on June 6, 2020June 6, 2020 by Nicholas Peart

According to the writer Daniel Kalder;

‘As the world has become smaller so its wonders have diminished. There is nothing amazing about the Great Wall of China, the Taj Mahal, or the Pyramids of Egypt. They are as banal and familiar as the face of a Cornflakes Packet.’

He further embellished on this via the following decrees originally established at the Shymkent Hotel in Shymkent, Kazakhstan on October 1999 as part of the so-called ‘first international congress of Anti- Tourists’;

The duty of the traveller therefore is to open up new zones of experience. In our over
explored world these must of necessity be wastelands, black holes, and grim urban
blackspots: all the places which, ordinarily, people choose to avoid.

The only true voyagers, therefore, are anti- tourists. Following this logic we declare that:

The anti-tourist does not visit places that are in any way desirable.

The anti-tourist eschews comfort.

The anti-tourist embraces hunger and hallucinations and shit hotels.

The anti-tourist seeks locked doors and demolished buildings.

The anti-tourist scorns the bluster and bravado of the daredevil, who attempts to penetrate danger zones such as Afghanistan. The only thing that lies behind this is vanity and a desire to brag.

The anti-tourist travels at the wrong time of year.

The anti-tourist prefers dead things to living ones.

The anti-tourist is humble and seeks invisibility.

The anti-tourist is interested only in hidden histories, in delightful obscurities, in bad art.

The anti-tourist believes beauty is in the street.

The anti-tourist holds that whatever travel does, it rarely broadens the mind.

The anti-tourist values disorientation over enlightenment.

The anti-tourist loves truth, but he is also partial to lies. Especially his own.

Considering these resolutions were written a little more than 20 years ago, I wonder what Kalder would make of travelling today? In 1999, the internet was barely a few years old. Back then, households that had an internet connection had a slow dail-up connection. There was no broadband and neither were there smartphones. 1999 seems rather ancient compared to the world today in the context of the exponential growth of global digital connectivity.

The world today is much more globalised than the world of 1999. A consequence of this has been even more demand to visit the worlds ‘wonders’ be it the Taj Mahal or the Great Wall of China or cities such as Venice and Florence. The ‘very desirable’ places that the so called anti-tourist snubs.

Then again, on the other hand, such wonders are an important part of the history of a country regardless of whether they are popular or not. Most visitors to India visit the Taj Mahal yet the Taj Mahal is an important part of the history of the Mughal Empire. Indian history is fascinating and one of the best documenters and narrators of this history is the writer and historian William Dalrymple. Dalrymple is a black belt regarding the history of the Indian subcontinent and has a deep passion and interest for that part of the world. So much so that he has lived in India for over 35 years. What this means is that this goes beyond any labels or identity. Dalrymple is neither a tourist nor an anti-tourist. Traveller or dilettante. He is simply someone who loves the subcontinent and dedicates a substantial chunk of their time to writing, educating, reading and learning about it.

When I think of my very first trip to India, I did a lot of the typical tourist things. I visited the Taj Mahal in Agra, I visited all the well trodden places in Goa and went on popular tours. Yet I also, unwittingly, did a lot of anti-tourist activities. I stayed in some of the cheapest and most unsavoury guesthouses I could find. I ate street food at rock bottom prices. I developed a habit of roaming the streets of the more down and out parts of the cities I visited. I didn’t document any of this neither did I really brag about them. I had no digital social media accounts at the time and I never kept a physical journal. Friends and family would ask me if I was writing about my trip, but I had no desire to. It wasn’t indolence. I suppose I was adrift in multiple intangible fleeting experiences and frequent moments of disorientation and I had no inclination to hole myself in my threadbare guesthouse room to put it all down to paper. People often talk about ‘finding one-self’ or ‘becoming enlightened’, but I wanted to get away from myself. In at least a semi-masochistic way, I revelled in my anonymity and frequent discomfort.

Every time I spoke to a tourist who expressed an interest to visit Brazil they would invariably say that they wanted to visit Brazil during Carnaval and specifically visit the city of Rio De Janeiro. In my mind I would say to myself, ‘I would like to visit Brazil anytime except during Carnaval.’ During this period, especially in Rio, accommodation prices go through the roof, many parts of the cities become unbearably overcrowded and the levels of crime spiral out of control. Rio is already a dangerous enough city at night, do I really want to visit it when it becomes even more dangerous? Nao obrigado!

Staying on the subject of Brazil, one popular activity many backpackers undertake when they visit Rio is a ‘favela tour’. Favelas are slums located on the the outskirts of cities in Brazil. Rio has a much higher proportion of them compared with other cities in Brazil owing both to the layout of the city and the extreme inequalities of wealth. Even the richest neighbourhoods in Rio seem to be just a stone’s throw away from one. I think the popularity of such tours is down to the belief that backpackers think they are doing something ‘edgy’ and ‘non-touristy’. Yet the irony is, considering the relatively recent popularity of such tours, they are anything but. It may be considered ‘anti-tourism’ on the surface and such activities do conform to Kalder’s resolution; ‘The anti-tourist does not visit places that are in any way desirable’. There is nothing desirable about these favelas. Yet neither is it clever or cool to visit such places which are downright dangerous. Also most of the people that go on such tours do so to brag and get a so-called one-upmanship over other travellers. The anti-tourist would never brag or boast about such things. Furthermore, there’s no danger during these tours since you are always accompanied with protection just in case anything does flare up. My Brazilian friend Carlos finds it comical that such tours exist; ‘Why would any tourist want to pay to visit a favela? Anyone who lives in a favela wants to pay to get out!’

There are other tours with anti-tourist themes. They could be ‘street tours’, tours to visit abandoned buildings or tours to visit derelict and defunct places destroyed by war. When I visited Bosnia a few years ago I went on a tour in the capital, Sarajevo. The city was under siege for three years from 1992-95. It was a fascinating tour and I dont regret doing it. Our guide lived through this terrible period and almost died at one point during the conflict. It would be pathetic and poor form of me to categorise it as a tourist or anti-tourist experience. I don’t wish to plunge to such low depths.

I guess the bottom line is that the anti-tourist does not purposefully try to be an anti-tourist. The anti-tourist is not aware that they are an anti-tourist. It is almost like a hardwired way of life with no underlying agenda or anything to prove. We seldom ever hear about such people, because they have no desire for notoriety. They prefer to remain invisible and anonymous.

Calling oneself an ‘anti-tourist’ is missing the point completely.

By Nicholas Peart

Image: something-interesting.com

REFERENCES:

http://www.danielkalder.com/antitourism.html

Money Cannot Buy Happiness, But…

Posted on June 2, 2020 by Nicholas Peart

Money can buy you freedom. That’s it. Not as a means for conspicuous consumption, gaining status or power, or indulging in an eternal cornucopia of mindless, decadent pleasure and self-indulgence.

The Twitter account Orange Book (@orangebook_) recently posted the following tweet…

Things money can buy:

-freedom to think
-freedom to travel
-freedom from jerks
-freedom to learn slowly
-freedom from an alarm clock
-freedom from work you dislike
-freedom from financial anxiety
-freedom from low-cost nutrition
-freedom to pursue a creative purpose

I could add more things to this list…

-freedom to create and invest in ventures that make the world a better place
-freedom to be time rich
-freedom to afford better healthcare
-freedom to help others

All of this is very positive, however there are downsides too. For example, I would include the following…

-freedom to run away from problems
-freedom to avoid the unsavoury aspects of life
-freedom to not live in the real world
-freedom not to grow

As much as having money shields us from the unpleasant aspects of life; from jerks, from jobs we hate etc ; if we never have to deal with these unsavoury aspects of life, this can put us in a very vulnerable and fragile situation if, by some random stroke of misfortune, we ended up in a no money situation. The freedom that money provided in the past is gone at the drop of a stone. When previously, money offered a means to be cocooned from the real world, not having any money now throws us back into it.

It is much better to have money, but at the same time, know how to deal with the real world, how to deal with challenging situations, how to deal with difficult people. This is because, if we ever find ourselves back to a situation without money, then life is not a constant struggle.

By Nicholas Peart

Image: Patheos

The Dangers Of Story Stock Investing

Posted on May 28, 2020May 28, 2020 by Nicholas Peart

Investing successfully requires a lot of boring fundamental analysis and often the best stocks to invest in are in boring overlooked, but undervalued companies with strong fundamentals and a decent margin of safety. These companies are not prone to hype.

On the other hand you have story stocks. Investing in a story stock does not mean that your investment will go down in value. On the contrary, a stock with a powerful story could make you very rich. Look at Amazon. Then again look at the multitude of other stocks, which had a powerful story behind them, but that was it. Fundamentally they were houses made of cards, which soon collapsed. The Dot.com crash from twenty years ago is littered with such casualties. More recently, the whole WeWork disaster is a prime example of company with an enticing and exciting story (as well as a charismatic and convincing leader), yet with very shaky and fragile financial fundamentals.

The problem with story stocks is that the stock valuation gets to a point where it is propped up much more by the goodwill of the story alone than by the company’s fundamentals. This is very treacherous territory as even a mild downtown or modest bit of bad news can send the share price crashing back down to Earth.

A stock with a unique story behind it is psychologically very alluring. Doing some solid due diligence such as analysing company reports and financial statements requires effort and if you dont have much experience on that front it can seem very daunting. However, with practice and learning you can become better at analysing and understanding all this nitty-gritty stuff, which also enables you to make better investment decisions with a cool head. Knowing exactly what you are investing in and having even just a modest understanding of the full financial health of a company is a very reassuring thing.

I suppose we prefer stories to analysis, because stories have much more of an instant cognitive resonance. Our minds can be lazy and it’s so much easier and more soothing to be swayed by a good story or glowing article in the media on a stock. More succinctly, sometimes a powerful mantra alone is enough to sway us. Software is eating the world or It’s the wave of the future or You are investing in a slice of history or Nobody else is doing what this company is doing are a handful of mantras that can make us overly bullish on a particular stock without questioning it further or taking it apart via some deep research.

The problem with such stories and mantras is that they activate and play to our emotions and making investment decisions based on emotions is never smart. We always have to have a healthy, balanced, critical and analytical mindset to investing without allowing our emotions to hijack and influence our decision making. A cool head always wins.

By Nicholas Peart

Image: 4.bp.blogspot.com

VALUE OR GROWTH? A Tale Of Two Scottish Funds

Posted on May 27, 2020September 17, 2020 by Nicholas Peart

There are two Scottish funds listed on the London Stock Exchange, which I would like to focus on in this article. They both have similar names, yet their investment strategies differ considerably. The first of these two funds, The Scottish Investment Trust, is a contrarian value fund. Whilst the second fund, the Scottish Mortgage Investment Trust, is a growth fund.

The Scottish Investment Trust (SCIN) is over 130 years old and was first established in Edinburgh in 1887. Since 2015, the fund has been managed by Alasdair McKinnon with a focus on blue chip dividend paying companies that are out of favour. McKinnon takes a contrarian view to investing avoiding sectors that are hot and investing in companies that are undervalued and where sentiment is poor. The rationale being that when sentiment turns, the value of the companies increase as investors begin to pile in. To be clear, contrarian and value investing don’t mean simply investing in any old company that is down and out and going through a turbulant period. It is important that the company has a margin of safety to ride out any difficult period thus protecting it from having to raise emergency cash and/or ceasing to remain a going concern. It is also equally important that the company has healthy cash flows and a decent track record of this. The amount of cash that a company generates from its operations is a crucial metric and sometimes overlooked. A low P/E (Price To Earnings) ratio is one thing and a significant metric in indicating whether or not a company is overvalued, yet it doesn’t tell the whole story. The level of cashflow generation indicates how much cash a company is generating and the more cash it generates, the more of a financial buffer it has, especially if it’s total operating margins are not very high. It is also important to monitor a company’s total liabilities and how manageable and sustainable they are.

As of 30th April 2020, the largest holdings in SCIN’s portfolio included large gold mining companies such as Barrick Gold and Newmont Mining, large pharmaceutical companies such as Roche, Pfizer and Gilead Sciences and other assorted value blue chips such as United Utilities, Japan Tobacco, BT and Chevron. The gold mining companies have been in the portfolio for sometime. Recently gold has performed very strongly and it’s likely to continue. McKinnon, like myself, is of the view that major fiat currencies run the risk of being debased. Since the last financial crisis in 2008, we have been living through a period of very low interest rates and easy money. The present COVID-19 crisis has only exacerbated this as central banks have reduced interest rates even more and printed unprecedented amounts of money to prop up national economies in the wake of this crisis. Add to this the staggering levels of global government, corporate and household debt and you have a rather fragile situation. McKinnon’s thesis for having exposure to gold is as a form of insurance against this extraordinary macro environment and the real future risks and consequences it carries. He is also no fool by investing only in the biggest and most geographically spread global mining companies with low production costs. Whilst it is true that gold may not currently be unloved, I would still consider it a contrarian investment as it represents, to a degree, a lack of faith and trust in central banks and governments. It is also considered unfashionable. I would argue that newer supply-capped digital cryptocurrencies such a Bitcoin are more fashionable and hotter than gold. Especially amongst younger investors who generally overlook gold and other precious metals as a store of value.

McKinnon deliberately stays away from sectors that are hot and fashionable such as the technology sector. SCIN has absolutely no exposure to FANG (Facebook, Amazon, Netflix, Google) stocks or any other hot tech/startup stocks. The closest thing to tech in the portfolio are it’s holdings in boring and undervalued blue chip communication service companies such as BT, China Mobile, Verizon and Deutsche Telekom. McKinnon believes that the tide will turn regarding the high valuation of many technology companies, as unlikely as this may currently seem, and that value stocks, for a long time overlooked and underperforming compared with their growth counterparts, will prevail in due course.

The Scottish Mortgage Investment Trust (SMT) is currently the most valuable investment trust by market capitalization listed on the London Stock Exchange. As of today, it has a total market cap in excess of £10bn and over the last decade has performed extremely well. The primary reason for its impressive performance has been it’s exposure to all the FANG companies plus a number of other tech investments that have recently done exceptionally well. For example, the fund has a substantial holding in Tesla, whose share price has more than doubled since the beginning of this year. Generally speaking, tech shares have done very well since the COVID-19 induced lockdown measures were put in place over the last few months and the share price of SMT is trading at all time highs.

SMT, like SCIN, is also a very old investment trust with a hundred year plus history having first been established in 1909. It is currently jointly managed by James Anderson and Tom Slater. Anderson has been managing the trust for 20 years with Slater joining him in 2010. Their focus is purely on growth and investing in companies of the future. SMT is everything that SCIN is not. SCIN adopts a Benjamin Graham style value investing strategy. SMT does not embrace this type of strategy and even questions it. This is highlighted in a series of interesting essays written by Anderson and published on the fund’s parent Ballie Gifford website entitled Graham Or Growth?. I highly recommend giving them a read as it provides one with unique insights into Anderson’s way of thinking and by extension the investment philosophy and strategies of SMT.

It is true that growth investing has greatly outperformed value investing since the last financial crisis more than a decade ago. At the very start of 2009 the Russell 1000 Growth Index (RLG) was around 360 points. Today it is almost 1820 points. In this time the RLG index has grown more than 500%. That is highly impressive. By comparison the Russell 1000 Value Index (RLV) was around 446 points on 1st January 2009. Back then the RLV index was higher than the RLG index. The same cannot be said today with the RLV index almost 1,105 points. The RLV index has grown less than 250% during this period. Whilst this is certainly not a poor return, it doesn’t hold a candle to the RLG index’s 500% plus return.

Regardless of which side of the fence I am on regarding value or growth investing, it cannot be denied that both Anderson and Slater are highly skilled and visionary managers with a highly impressive track record for picking winners. It is much harder to quantify growth stocks than value stocks via traditional metrics and methods of fundamental analysis. If one were to just use just those methods when investing, one would have passed on investing in Amazon, Alphabet or Tesla in the early stages of their listings in the public markets. It takes more than just the tried and tested strategies of the past to value these companies and Anderson’s essays make this very clear.

However, it is just simply not the case that all new and exciting tech companies are ‘crushing it’. There have already been some casualties. The one that springs most to my mind has been the downfall of workspace company WeWork. Before the issues of the company came to the fore, it had a valuation of $47bn even though it had vast amounts of debt. Today, it’s worth far less at around $3-4bn. One of the largest investors in the company is SoftBank whose Vision Fund took a massive hit. Fortunately, SMT and its parent company Baillie Gifford, never built up a stake in WeWork over the years, but it could have easily happened here.

The recent WeWork debacle is one of a number reasons that make me nervous about having too much exposure to SMT right now irrespective of its stellar performance. As much as I respect the vision and foresight of Anderson and Slater, I worry that their fund could come a cropper some time down the line if a number of the holdings in the SMT portfolio underwent similar write-offs in value like WeWork. One of the fund’s holdings, Tesla, is probably the most polarised and hyped publicly traded stock in the world today. I have a great respect for its founder Elon Musk, who is a highly driven and exponentially thinking visionary. There is no doubt in my mind that he is special. However, the company could very easily experience a similar WeWork style crisis. No matter how highly I rate Elon, the financial fundamentals of Tesla are fragile and the share price could dive spectacularly in the event of a major existential crisis. This would create a huge dent in the value of SMT, as its Tesla holding currently represents a chunky 10% of the entire portfolio. Together with Amazon (which also represents 10% of the total holdings), it is one of the largest holdings in the SMT portfolio.

McKinnon is very wary of the present high valuations of tech companies and has citied the WeWork situation as a clear and present danger. In a post from December 2019 entitled Peak Unicorn?, he refers to the overvaluation of these exciting multi-billion dollar valued unicorn story stocks as a ‘disruption’ bubble, which has been propped up by an environment of cheap money and will not end well.

The last ten years have been very good for growth and technology stocks, yet it remains to be seen whether the next ten years will be equally magnanimous.

By Nicholas Peart

Published on 27th May 2020

CITED ARTICLES:

https://resoluteoptimism.bailliegifford.com/will-the-mean-revert/

Peak Unicorn?

Image: tripsavvy.com

The Future Of Tech, Work, Education and Living Post COVID-19

Posted on May 24, 2020May 24, 2020 by Nicholas Peart

This year’s COVID-19 pandemic has been highly disruptive in many areas of our lives. As I type this article, there have been statistically nearly 5.5 million cases and almost 350,000 deaths from this pandemic around the world. In addition to the toll this virus has taken on peoples’ lives, there have been grave economic ramifications. Many businesses and industries have been hit hard and as a consequence millions of people have either lost their jobs or have had to take a pay cut.

The unstoppable growth of the internet over the last 20 years has had a profound effect on our lives. It could already be said that we live in both the physical world and the virtual world. Yet during the lockdown period of the last several weeks, we have been spending considerably more time in the latter world. The growth of the internet has already had a noticeable effect on the physical high street as more people do their shopping online. Yet, the lockdown restrictions, at times, have given people no choice, but to buy almost all their groceries online thus increasing greatly the rate of e-commerce transactions. We have also been interacting much more with other people virtually, both for work and pleasure. And as educational institutions remain shut, or at least severely restricted, we have been doing a lot more learning online.

In an article I wrote back in 2017, I discussed new and emerging technologies such as Virtual Reality (VR) and Augmented Reality (AR) and how they could change people lives, especially in the areas of education. As students are still currently unable to physically go to university and attend lectures, much of their courses and lectures are now online. In my 2017 article, I discussed how via VR technology one could be completely immersed in a setting and interact with it from anywhere with an internet connection. The education industry has long needed such a change. One of the biggest current problems facing young people is the unbelievably high costs of going to university. By the time they have graduated, they are saddled with staggering sums of debt. Yet I have long felt that it doesn’t always have to be that way and that given time, technology would soon provide a much needed solution to this issue. Even though I went to university and got my degree many years ago, I find that a lot of all the most recent knowledge I have gained has been via content online. I, of course, also supplement this knowledge with books in both physical and digital form. There is so much free and good quality educational content out there on the web. And I am also happy to pay for exceptional online resources too. Yet the total amount of money I pay is still far less than what I would pay going to universities, where tuition fees in the UK are currently still over £9k per year.

In an earlier article from 2016, I discuss how VR could potentially change all aspects of our lives, not just within the realms of education. During the lockdown period, the video communications app Zoom has taken off in a big way. Zoom has been the default option for not just video calls between family and friends, but also for remote working and playing. By the latter, I mean having a kind of ‘virtual night out’. Rather than physically going out to a bar or club with friends, Zoom has been used as a virtual platform for replicating a physical night out. VR and AR are both powerful emerging technologies and now is the perfect time for them to be harnessed to a greater level. Interacting via Zoom is still a 2D experience, yet VR and AR have the potential to make this a more immersive 3D experience. This would reduce the chasm greatly between the physical and virtual worlds.

There is no question that remote work will continue to grow and these new and emerging technologies will accelerate this growth. Yet will traditional office spaces be made completely redundant? It is tempting to go down this route and its currently all the rage to have the belief that this virus will make the traditional office space obsolete as an increasing number of workers find the option of remote work to be more appealing and perfectly feasible. To be clear, as I already stated, there is no doubt in my mind that remote/virtual work will grow, yet I think it’s at this stage too premature to say that the traditional physical office environment is dead. Even if technology develops exponentially, we are still, fundamentally, organic human beings and creatures of emotion more than logic. As long as we remain 100% organic human beings, we will still long for that human touch and physical interaction. I think to completely 100% forsake the physical world for the virtual world, we will need to physically merge with technology. I am with the futurist and inventor Ray Kurzweil on his prediction for the coming Singularity in 2045 when Artificial Intelligence (AI) will be at the same level as human intelligence. This will be, arguably, the most significant event in human history and I will never bet against the infinite potential of AI. If software is currently eating the world, soon it will be AI. Yet as AI becomes further developed, the options for us to merge with technology will also arrive. AI, rather than posing an existential threat, I believe, will make our lives easier and more comfortable. What’s more, it will also enhance our lives and enable us to reach our fullest potential.

Going back to the topic of post COVID living, could the development of cities/urban spaces be affected? What if there was a growing trend whereby there was an increasing migration from cities to more rural areas? For some time, as technology improved – more specifically; internet speeds and bandwidth improved further – there has been already to a small degree such a trend. You can go and live in the remotest part of the country, but if you have access to a high speed internet connection over there, then you have full sophisticated access to the virtual world no different to that in a big city no matter how remote the physical environment may be. Yet will there ever be a complete deurbanisation type of migration where the physical location of people is much more fragmented? If such a migration were to happen in the near future and we are still 100% organic beings, we will be incredibly reliant on the virtual world and by extension the cell towers connected to our internet providers. Even if SpaceX, via its Starlink project, intends to beam super-fast satellite internet on all corners of the world in the next few years, for now we are still reliant on onshore cell towers as the source of the internet. This is quite a fragile situation, as any disruption to these cell towers disrupts the internet itself and thus a great chunk of our lives. We become instantly irritated with slow internet speeds let alone having no internet. It is amazing how dependent on the internet most of the world is. The cells towers providing the internet are powered by electricity and electricity is powered by energy from both renewable and non-renewable sources. In spite of all the technological advances since the first Industrial Revolution, we have still not found a permanent and workable solution to the long standing energy problem, that is, how do we generate an abundant and unlimited supply of energy for every corner of the world without having to tap into any non-renewable sources?

I sometimes feel that I overestimate the speed of technological development. Earlier in the last decade, I thought that within the next few years (now), every household would have a 3D printer and the smartphone would be replaced by some form of smart-glasses with fully integrated and advanced VR and AR technologies. This has simply not happened. Even if these technologies may be available in some shape or form, we still use smartphones. The smartphones of today may be more sophisticated than the smartphones of just a few years ago, but they are still smartphones. Our interaction with the virtual world remains a 2-D experience. This is why I feel that in order for us to live completely in the virtual world with little to no living in the physical world, we have to adopt some form of transhumanism where our minds and bodies are fully integrated with technology.

Going back to the economic ramifications of the current COVID-19 pandemic, I wonder whether, at least in the short to medium term, the concept of a Universal Basic Income (UBI) may become more widely adopted? Already technology has been automating many menial and repetitive jobs that has resulted not only in vast swathes of people losing their jobs, but also in these same people being ‘left behind’ as technology marches on. This is a serious concern as such people become naturally angry and turn to political parties and figures who echo and amplify their frustrations rather than turn to transformative solutions. The virus has hit hard industries requiring a constant physical presence. Some of these industries that have been hit hard such as, for example, the physical high street retail industry, has long already been affected by the growth of the internet. This virus has almost been like the final nail in the coffin.

Technology never stands still and the number of people using the internet will only keep growing. If you look at the S&P 500 (the top 500 companies) you will see that the biggest companies today are all technology companies. My concern however is with the demise of all these low skilled repetitive jobs. Although I personally think that a lot of these jobs are time wasting jobs (and time is an increasingly scarce and valuable asset), which offer no spiritual or intellectual nourishment, many people are employed in such jobs and depend on the income for their survival. If such jobs disappeared on an even greater scale and the people employed in these jobs had little or few alternative skills for other jobs, how will they survive? I hear a lot of emphasis on ‘learning to code’. Whilst computer programming is very useful and currently provides a lot of employment opportunities, who’s to say that such jobs also won’t get disrupted? Furthermore, why would anyone want to learn something purely for the ’employment opportunities’ it will bring? Surely one would learn computer programming, because there are interested and fascinated by it? Learning it just purely to make money seems very flawed and short sighted to me. If we want to continue to live in a capitalist economy then a Universal Basic Income may have to become more widely adopted. Otherwise the alternative is a socialist economy. I do in the long run, however, believe that we will enter a brand new kind of post-scarcity and post-work environment of abundance created by exponential technological innovations. This would transcend any economic model of the past. I wrote about this in greater depth in my article from last year entitled ‘THE TRUE SINGULARITY: A Universe Of Unlimited Abundance And Eternal Harmony’. This kind of vision for the future is also outlined very clearly in the excellent 2011 book by Peter Diamandis and Steven Kotler ‘Abundance’. Yet in order for this to become a closer reality, we also cannot take technological development for granted. One of the early internet pioneers and entrepreneurs, Marc Andreessen, wrote a recent article entitled ‘Its Time To Build’ talking about this. We cannot take innovation for granted and rest on the laurels of the technological advancements of the past. When the virus hit the world, we were unprepared. There was no available vaccine to protect us. Thus we had to adopt measures that have been very disruptive to our daily living. Several companies may currently be working on a cure and it could still be several more months before one is in place, but the point is there was no available permanent remedy at the time. Technology may have provided many vital solutions to long standing limitations, yet, as is currently clear, there are so many more limitations that require solutions. And it is only via continuing to innovate and build that we can ensure that these other limitations begging to be solved are solved.

By Nicholas Peart

Published on 24th May 2020

Image: qimono

Nick’s Chocolate, Banana and Pumpkin Brownies

Posted on May 23, 2020 by Nicholas Peart

There are several different ways to make brownies. Before establishing my own recipe, I wanted to create a brownie recipe that wasn’t too butter heavy and I wanted the creative variation of incorporating other whole foods. I use banana a lot in baking, but I have never experimented with pumpkin before. In this recipe, I find that mashed pumpkin blends very well with raw cane sugar and is great when combined with mashed bananas. The banana and pumpkin combo also gives these brownies a delightful gooey-like texture and is a much more healthy substitute to using large quantities of butter.

INGREDIENTS

A good wedge of pumpkin (peeled and cut into cubes)
2 old bananas
1 cup of raw cane sugar
3 eggs
1-1.5 cups of plain flour
2 teaspoons of baking powder
2 small slivers of butter
Cocoa Powder (about one third of a cup)
100 grams of dark chocolate
Rapeseed oil

Instructions:

1) Wash the pumpkin cubes and boil in a pan of water until soft.

2) Drain the water from the pan and then mash the pumpkin.

3) Pour one quarter of a cup of raw cane sugar into the pan and mix well with the pumpkin.

4) In a bowl, mash the two bananas.

5) Then crack and apply the 3 eggs to the mashed bananas.

6) Whisk the eggs and mashed bananas thoroughly until smooth and finely blended.

7) Add the pumpkin mixture to the banana and egg mixture and blend well.

8) Add and stir in the remaining three quarters of the cup of raw cane sugar to the mixture in the bowl.

9) Sieve the flour and baking powder into a separate larger bowl.

10) Add one of the two small slivers of butter to the flour and mix well with your hands until the butter is fully integrated into the flour.

11) Next, mix in the cocoa powder to the flour.

12) Apply the banana, pumpkin and egg mixture to the flour and cocoa and stir in thoroughly

13) Add drizzles of rapeseed oil to the mixture, which will further moisten it and aid in getting all the remaining flour and cocoa at the bottom of the bowl properly blended in.

14) Break the dark chocolate into small pieces and put in a small bowl.

15) Add boiling water to a small saucepan and cook on a reasonably high heat.

16) Put the bowl over the saucepan. The chocolate should slowly melt.

17) Once the chocolate has melted, apply and stir it into the mixture in the large bowl.

18) Use the second small sliver of butter to sufficiently grease a rectangular baking tray. Then line the tray with parchment paper.

19) Preheat an oven at 180 degrees Celsius.

20) Apply all the brownie mixture to the tray and put the tray in the oven to cook for 20 minutes.

21) Take the brownies out of the oven and with a small knife or food stick, prick the deepest part of the cooked brownie mixture. At this stage it is very important that it retains at least a modest layer of goey-ness. However we don’t want the mixture too dry and cake-like. If the mixture is too goey and liquid-like return to the oven for a further 5-10 minutes.

Recipe and photo by Nicholas Peart

Nick’s Rustic Vegan Moussaka

Posted on May 22, 2020May 23, 2020 by Nicholas Peart

During the last two months of the COVID related lockdown period, I have been spending some time in the kitchen. I enjoy cooking and find it a theraputic and healing outlet. One of my favourite dishes is the famous Eastern Mediterranean dish moussaka. Making moussaka is a veritable treat and worth the effort. It is one of my favourite foods and my plant-based version of this dish is very filling and healthy. When I first made the original meat version of this dish, I followed a recipe on YouTube by the Greek chef Akis Petretzikis. I like his recipe since I find it rather easy to follow. What’s more, he bakes the aubergines, rather than fries them in oil, which I think is a much healthier alternative. I have incorporated some methods and elements of his recipe to this recipe and of course I have brought my own twist to this delicious dish.

In the original classic moussaka recipe, ground beef is used for the mince. Instead of ground beef, I use lentils. I also add some additional flavours to the mince by using cumin seeds and ground paprika.

The béchamel sauce is normally made using butter, milk and egg yolk. For my recipe, the béchamel sauce is completely plant-based and doesn’t include any dairy products or eggs. My version of the sauce is made simply by using extra virgin olive oil, plain flour and soya milk plus ground nutmeg, salt and ground black pepper for taste and flavours.

Lastly, for the first layer of the dish, I have added sweet sliced potatoes to go with the standard sliced potatoes.

INGREDIENTS

1 large potato
1 large sweet potato
1 red onion
1 large aubergine
2 medium sized courgettes
Fresh or dried thyme
Extra virgin olive oil
Ground black pepper
Salt

For the mince:

2 cans of lentils (or cooked lentils)
1 can of diced tomatoes
2 generous tablespoons of tomato paste
1 red onion (chopped)
3 cloves of garlic (chopped)
Vegetable oil
Cumin seeds
Ground paprika
Salt and ground black pepper to taste

For the creamy béchamel sauce:

1 litre of soya milk
Plain Flour
Extra virgin olive oil
Ground nutmeg
Salt and ground black pepper to taste

Instructions:

1) Grease well a normal sized baking dish with oil.

2) Peel and thinly slice 1 large ordinary potato and 1 large sweet potato. Then peel and chop one red onion. Next put the sliced potatoes and chopped red onion into a bowl and drizzle them in extra virgin olive oil and add salt, ground black pepper and fresh or dried thyme.

3) Transfer the potatoes and onion mixture into the baking dish and evenly spread out.

The first layer of sliced potatoes and chopped onions before entering the oven

4) Preheat an oven to 200 degrees Celsius and put the baking dish inside for 20 minutes.

5) Whilst the potatoes and onions are cooking, finely and thinly slice the aubergine. Then put the cut slices into the bowl and generously drizzle with extra virgin olive oil and add salt, ground black pepper and fresh or dried thyme.

6) During the remainder of the time, as the potatoes and onions continue to cook, proceed to finely slice the two courgettes.

7) After 20 minutes remove the baking dish from the oven.

8) Then add to the dish, over the cooked potatoes and onions, the second layer of the sliced aubergines.

The second layer of the sliced aubergines

9) Return the baking dish to the oven and cook for another 20 minutes at 200 degrees Celsius.

10) Whilst that is cooking, transfer the sliced courgettes into the bowl and drizzle with extra virgin olive oil and add salt, pepper and thyme before mixing well.

11) Then for the rest of the time, before taking out the dish again, heat some vegetable oil in a wide and deep pan. Add a sprinkling of cumin seeds to the cooking oil. Then proceed to add the chopped red onion and garlic cloves to the pan and cook on a reasonably high heat for a few minutes.

12) Turn down the heat and add a generous tablespoon of paprika and mix well.

13) Next, add the lentils and two generous tablespoons of tomato paste and mix it thoroughly into the lentils.

14) Then add and stir in the chopped tomatoes.

The lentil mince mix of the dish

15) Add salt and ground black pepper to taste. Keep the lentil mince mix on a very low flame stirring occasionally.

15) By now, the potatoes, onions and aubergines should be ready to take out of the oven.

16) Once the baking dish is out of the oven, add the sliced courgettes over the aubergines and then return the baking dish to the oven and cook for 10 minutes at 200 degrees Celsius.

The third layer comprising of the sliced courgettes

17) As the courgettes and other vegetables cook, heat a good amount of extra virgin olive oil in a saucepan. As the oil cooks, slowly add small teespoons of plain flour to the oil and mix well and thoroughly with a wooden spoon. Once the mixture becomes like a ball of sticky dough, slowly add a little of the soya milk to the mixture and mix well. Keep repeating this until you end up with a silky textured and creamy-like sauce.

18) Next, add salt and pepper to taste followed by a generous sprinkling of ground nutmeg to further enhance the flavour.

The béchamel should have a silky and creamy texture

19) Once the béchamel sauce is ready, add a couple of generous tablespoons of the sauce to the lentil mince mix and stir in well.

20) When the courgettes are ready, take the baking dish out of the oven.

21) Transfer the whole lentil mix from the pan and smother over the courgettes in the dish.

The fourth layer is made up of the lentil mince mix

The plant based béchamel sauce makes up the final layer

22) Next, scoop all the béchamel from the saucepan and cover over the lentils in the dish.

23) Finally return the baking dish to the oven and cook for 30 minutes at 200 degrees Celsius. Once the 30 minutes have elapsed, the moussaka should be ready to serve.

Recipe and photos by Nicholas Peart