“Ignore 98% of what you hear in analyst calls”—investing lessons from the departing editor of Fortune 

Clifton Leaf, editor of Fortune, is leaving the magazine. In a candid farewell note published this week, Leaf offers a few thoughtful observations about the route to success in business and investing. “What did give companies a genuine edge, and what still does today, is to empower consumers,” he writes. “It sounds almost too obvious to say, and yet it’s a message that’s routinely forgotten.” He continues: 

“Want to sell more stuff? Make it as easy as possible for a customer to buy it. Want to entice the masses to spend hundreds of dollars on your revolutionary “smartphone”? Take a page from the Steve Jobs playbook and make it as intuitive to use as possible. When I think of what I’ve learned about business since arriving at Fortune—and, particularly, in my past four years and change as editor-in-chief—I come away with a comically simple set of lessons: Empower customers. Treat people well. Meet an unmet need. Make the world better. If you want to judge a business, forget the price/earnings multiple and rate of sales growth. Ignore 98% of what you hear in analyst calls, and just ask yourself how the company performs in the four key areas above.”


A big battery made of… concrete? 

The two biggest challenges for scaling renewable energy sources are distribution and storage. A couple of months back, I wrote about the distribution challenge—and how virtual power plants are helping to decentralize the grid. But the storage problem—i.e. scaling battery systems to deliver electricity—is the next big hurdle of the 2020s. Lithium-ion batteries are the main—but not the only—source of potential energy storage. This week, scientists at the Chalmers University of Technology in Sweden, published research showing how concrete—yes, concrete—can prove to be an effective energy storage mechanism. They write, “with a minor tweak, the concrete used to build many of the world’s buildings and infrastructure projects can be turned into a rechargeable battery.” The implications here are fascinating—even if it’s just a theoretical innovation at the moment. 

“By embedding a typical concrete mix with short carbon fibers, an iron-coated mesh of carbon fiber, and another mesh coated in nickel, the concrete can be made to conduct and store small amounts of electricity. Incorporated at the scale of an apartment building, bridge, or citywide sidewalk network, the energy storage capacity could add up to provide a modest but potentially renewable source of electricity.”


How stock buybacks help explain the global chip shortage 

My old boss Peter Goodman, now the global economic correspondent at the The New York Times, wrote a comprehensive piece this week examining the roots of many of today’s supply chain shortages—from microchips to paint sealers—that has affected pretty much every industrial sector in the world. The article, appropriately titled “How the World Ran Out of Everything,” goes deep into the limitations—and potential disruptions—of “Just In Time” manufacturing, the logistics process that’s become ubiquitous in the last 50 years. The article also draws a smart link between the billions of dollars many American corporations have spent on stock buybacks with a lack of preparedness in times of turmoil. 

“Still, the shortages raise questions about whether some companies have been too aggressive in harvesting savings by slashing inventory, leaving them unprepared for whatever trouble inevitably emerges. “It’s the investments that they don’t make,” said William Lazonick, an economist at the University of Massachusetts. Intel, the American chip-maker, has outlined plans to spend $20 billion to erect new plants in Arizona. But that is less than the $26 billion that Intel spent on share buybacks in 2018 and 2019 — money the company could have used to expand capacity, Mr. Lazonick said.”


A few more links I enjoyed: 

“Oil companies have been hesitant to embrace the rally in oil prices. It comes as investors exert increasing pressure on oil companies to green their businesses, prompting drillers to pare back spending on long-term projects…Drillers’ hesitancy is explained by several factors. Bankers are loath to lend to shale producers after many failed to deliver the returns promised during the booms of the last decade. Investors are demanding drillers prove they can generate positive cash flow, hampering new drilling plans.”
“Economics is a science of cycles. There is the business cycle and the inflationary cycle, the rhythms of housing booms and credit busts. This periodicity affords money a whiff of certainty—a sense that wealth and poverty are, like the positions of the planets, subject to a set of objective and universal truths. But even the earliest economists acknowledged that divining financial fortunes requires as much knowledge of unpredictable psychology as of measurable facts.”
“From lumber to paint to concrete, the cost of almost every single item that goes into building a house in the U.S. is soaring. In some cases, the price increases have topped 100% since the pandemic began. There are any number of factors at play—from rock-bottom mortgage rates to city dwellers’ rush to the suburbs to shortages of materials—but the simplest explanation is that there is just too much demand for builders and their suppliers to handle.”
“We have known for decades that dangerous emissions from diesel and petrol vehicles causes tens of thousands of premature deaths across Europe every year. Yet, even after the dieselgate scandal exposed EU carmakers cheating on emissions tests, the industry continues to deny responsibility for the appalling air quality in our cities. At this very moment, carmakers are aggressively lobbying against a new law that would make engines less polluting and improve air quality for all. The human cost of serious health problems and diseases, including lung cancer, asthma and heart disease, also costs countries tens of billions of Euros every year.”
“Our analysis highlights how much value can be gained through cloud optimization — whether through system design and implementation, re-architecture, third-party cloud efficiency solutions, or moving workloads to special purpose hardware. This is a very counterintuitive assumption in the industry given prevailing narratives around cloud vs. on-prem. However, it’s clear that when you factor in the impact to market cap in addition to near term savings, scaling companies can justify nearly any level of work that will help keep cloud costs low.”

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