Owning #1 businesses 

The phrase “long-term investing” is one of those clichés that I know I’m guilty of overusing on a weekly basis, so here’s my bid to reframe the term more accurately: Long-term investing is not just about patience or endurance (though that’s part of it) and it’s not about placing faith in management to lead your investments to whatever promised land they have sold. Long-term investing is simply about (a) owning #1, dominant businesses and (b) constantly refreshing the valuation and analysis, seeing which businesses are winning with customers (and which aren’t).  

The key point here, I might add, is that prices (e.g. stock quotes) offer limited data into the analysis. As our CIO Arne Alsin likes to say—”it’s just a bid.” Volatility and fluctuations are never pleasant but it’s precisely these fluctuations that create an arbitrage for long-term investors over a period of years. Market prices receive the most attention because they are juicy bits of raw data, but they’re typically a distraction for a long-term owner of a business.

Markets also tend to overreact in the short-term, which leads me to Edward Yardeni’s piece in the Financial Times this week: “Investors are too bearish about the US stock market.” Yardeni’s major point is that valuations have compressed too far relative to future earnings growth (at least at particular companies).

At the end of the day, the current situation is a stock picker’s market. From here, dominant, #1 businesses should continue to flourish on the ground level, and when capital flows re-enter the market, we may begin to see a true dispersion of repricing into the real winners and losers of this cycle…  

“That’s right — while investors are reducing the valuation multiple they are willing to pay for consensus earnings, analysts have been raising those very same earnings projections! To some extent, the downward re-rating of the forward PE ratio makes sense since it tends to be inversely correlated with inflation and bond yields, both of which are rising. But it also indicates that investors are much more concerned than industry analysts are that tighter financial conditions will cause a recession.”

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How Spotify is leveraging neural networks to propel growth

On its surface, Spotify is an audio app for music and podcasts. Underneath the surface, however, Spotify’s engineers are developing a complex machine learning-based ecosystem that’s developing new techniques to recommend both music and podcasts to its users. 

This strategy is creating an interesting flywheel effect: Users are spending more time on the platform because of relevant recommended content, which is attracting more advertisers, which is attracting more creators and content, which is attracting more users, and so on.

Spotify’s head of R&D, Gustav Söderström, appeared this week on the Robot Brains podcast with Pieter Abbeel for an in-depth conversation about how the the AI and machine learning teams at Spotify are helping creators reach more listeners, expand the platform with relevant music and podcasts, and grow the overall pie of audio content globally. (H/T Cameron Tierney)

“Music is universal. It transcends language. Melodies have the power to trigger strong emotions….Today’s guest, Spotify’s Chief R&D Officer Gustav Söderström has been helping to bring the magic of music, personalized playlists, and as of more recently podcasts to people around the world. He’s also led the platform to personalize individual content experiences with the help of artificial intelligence. Pieter and Gustav discuss the platform’s early approach to AI & ML, how he wants to help content creators reach more listeners, and the technological details of Spotify’s ability to automatically generate millions of new playlists every day.”

A few more links I enjoyed: 

Q1 2022 Shareholder Letter – via 180 Degree Capital Corp.
“Our performance is our performance. Whether it’s good or bad, I have never once in my life made excuses for it, and I am not going to start here. While I love investing and loved my career on Wall Street, I have had much disdain for how some investors talk about their own performance from time to time. For instance, back in the 1980’s, one portfolio manager who consistently failed to keep up with his appropriate benchmark boasted in a shareholder letter: ‘In 1991, we were able to capture 80% of what we considered to be a high-risk advance for the market.’ I almost fell out of my chair after reading that statement. I wish I could get paid for achieving 80% of the market return! In that portfolio manager’s mind, the fund didn’t underperform the market by 20%. Instead, the shortfall was because that portion of the market’s advance was ‘high risk’ and seemingly fictitious. It was an arrogant thing to say and was a pathetic justification for underperformance.”
Germany’s Path to ‘Freedom Energy’ by 2030 – via RethinkX
“Germany is facing an unprecedented energy supply crisis as it rethinks dependence on Russian oil and gas imports. But this crisis also poses a unique opportunity. Within the next decade, Germany can lead the world by creating a fully self-sufficient zero cost clean energy system for less than the country’s current annual fossil fuel spending, laying the foundations for a bold new era of long-term energy security and economic prosperity unlike anything seen before.”

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