Invest in hedgehog CEOs; avoid the foxes 

One idea that stuck out to me in this week’s Acquired podcast conversation with Altos Ventures co-founder Ho Nam was the distinction between “foxes” and “hedgehogs” in the boardroom. Nam’s tongue-in-cheek metaphor is actually borrowed from Jim Collins’ book “Good to Great”—which itself is borrowed from an 8th century Greek lyric poet Archilochus!—but the core of the idea is that there are two basic archetypes of business leaders/founders: Foxes, which tend to be serial entrepreneurs, and hedgehogs, which want to stay at their company forever. I dug up Nam’s original blog post on this idea, which I really enjoyed—there are several timeless insights in here about what to look for when investing in any company.  

“Hedgehogs may not be as clever as foxes but they obsessively measure and track everything about their business, and over time, they acquire deep, relevant knowledge and expertise. Their single minded approach may appear risky at times but they are conservative by nature. Hedgehogs don’t speculate or make foolish bets. If all their eggs are in that one proverbial basket, they follow Mark Twain’s advice – and watch that basket very carefully… The thing with Hedgehogs is that they never give up. They keep at it – and they don’t ever get bored because they just love what they do – and they have a lot of fun along the way.”


Are passive index funds (and their investors) ready for the end of the fossil fuel era? 

report published this week by IEEFA offers some startling insights into how quickly shareholder wealth is being destroyed across the fossil fuel spectrum. In particular, IEEFA takes aim at Vanguard, which, remarkably, apparently has no coal exit policy, and, according to the report, has already experienced a 5.6% performance drag because of its investments in fossil fuels. Back in 2019, I spoke with Kingsmill Bond of Carbon Tracker about the threat of stranded assets to institutional investors; those risks appear to be materializing.

“With a portfolio of funds containing an estimated $300 billion in fossil fuel exposure, with $90 billion in thermal coal, this passive approach to governance and climate is coming at a rising cost to investors in Vanguard products. For the better part of a decade, the performance drag of fossil fuel investments has been substantial. Take for example Vanguard’s largest fund, the Total Market Index Fund (VTI) which has over US$1.2 trillion in AuM (>15% of Vanguard’s total assets, and coincidentally the world’s largest fund). Since January 2020, the VTI underperformed by ~5.6% versus a comparable benchmark which excludes fossil fuels. A significant amount of value has already been destroyed in the $1.2 trillion in investments in the fund.”


The exciting possibilities of clean steel 

The steel industry is one of the dirtiest businesses in the world: It’s responsible for about 8 percent of all global carbon dioxide emissions. That’s why, this week, I was excited to read about some potentially profound technological breakthroughs in Sweden where researchers are now using renewables—instead of coking coal—to create (nearly) emissions-free steel. The process itself is a bit complex—it involves taking renewable sources to produce hydrogen, then using that hydrogen with iron ore pellets to make sponge iron, which is then converted to make steel—but it’s a promising early-stage innovation worth watching. 

“In the deluge of breathless announcements of emissions-cutting technologies, I often ask myself some variation on the same question: Is this a big deal? Today, I’m going to tell you about one that looks like a big deal, providing hope that the world can find ways to reduce the carbon footprint of heavy industry. In Sweden on Monday, the partnership of a steel company, a mining company and an electricity producer announced that it had succeeded in producing a form of iron using a nearly emissions-free process.”


A few more links I enjoyed: 

“If you’ve been following Blizzard for any amount of time, it’s hard not to notice the outflow of talent from every part of the business. While Blizzard says its voluntary turnover is significantly under industry average and that departures among developers who have been with the company for longer than 10 years are in fact decreasing, several high-profile departures have contributed to the sense among fans, media, and many within the company that Blizzard is experiencing an exodus.”
“Scientists have discovered a structure in the distant universe so immense that it is actually challenging our understanding of the universe. Known as the Giant Arc, this crescent-shaped stream of galaxies stretches across 3.3 billion light years, making it about one-fifteenth the radius of the entire observable universe. The unusual discovery was recently announced by Alexia Lopez, a PhD student at the University of Central Lancashire who detected the Giant Arc, at the 238th virtual meeting of the American Astronomical Society. “It’s so big that it’s hard to explain with our current theories,” Lopez said during her presentation on June 7.”
“Transiting the Suez Canal is sometimes nerve-racking. The channel saves a three-week detour around Africa, but it’s narrow, about 200 meters (656 feet) wide in parts, and just 24 meters deep. Modern ships, by contrast, are massive and getting bigger. The Ever Given is 400 meters from bow to stern and nearly 60 meters across—most of the width of a Manhattan city block, and almost as long as the Empire State Building is high. En route from Malaysia to the Netherlands, it was loaded with about 17,600 brightly colored containers. Its keel would be only a few meters from the canal bottom. That didn’t leave much room for error.”
“It seems that narratives have everything to do with markets these days, which is also creating new risks for investors. The biggest, most divisive debates are about stories rather than fundamentals, ranging from the utility of cryptocurrencies to whether the current spike in inflation is transitory, and from whether sky-high valuations are warranted to whether there is too much fiscal and monetary stimulus.”

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